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ilriliilillliil 


UNIVERSITY  OF  CALIFORNIA 
AT   LOS  ANGELES 


The  D.  Van  No^rand  Company 

intend  this  book  to  be  sold  to  the  Public 
at  the  advertised  price,  and  supply  it  to 
the  Trade  on  terms  which  will  not  allow 
of  reduction. 


1? 


ENGINEERING  VALUATION 


OF 


PUBLIC   UTILITIES 
AND  FACTORIES 


BY 


HORATIO   A.   FOSTER 

MEM.    AM.    INST.    E.    E.,    MEM.    AM.    SOC.    M.    E. 

ADTHOK    OF    "ELECTRICAL    ENGINEERS*    POCKETBOOK  " 

CONSULTING   ENGINEER 


NEW  YORK 

D.   VAN    NOSTRAND    COMPANY 

25  Park  Place 

1912 


Copyright,  1012,  by 
D.   VAN   NOSTRAND   COMPANY. 


KortnooD  ^rrss 

J.  8.  CushliiK  C...       I'„T« ick  i  Siiillli  C. 

Norwood,  MuhN.,  U.8.A. 


CO 
CO 

en 


PREFACE 

The  demand  for  information  regarding  the  valuation  of  public 

~   utilities  has  been  growing  at  a  rapid  rate  during  the  last  few  years. 

"^  The  reason  for  it  is  not  far  to  seek.     Many  states  have  put  their 

^^   public  utilities  in  charge  of  Commissions  appointed  or  elected  for 

J.    the  purpose,  and  these  commissions  in  many  cases  demand  valua- 

■z.   tions  of  the  properties  when  permission  is  asked  to  make  a  change 

in  the  rates,  or  to  add  to  the  securities  for  any  purpose.     Many 

corporations  are  even  now  having  careful  appraisals  made  of  their 

^    property  and  are  as  carefully  keeping  them  up  to  date  in  anticipa- 

.  -    tion  of  the  day  when  the  public,  through  the  proper  channels,  will 

A   demand  changes  in  rates  which  will  necessitate  such  appraisals. 

X       These  conditions  have  brought  on  an  urgent  demand  for  in- 

■X   formation  as  to  methods  of  valuation  which,  as  yet,  has  not  been 

.   available.     The  author  has  attempted  to  supply  a  part  of  this 

§  demand  with  a  book  almost  rudimentary,  in  order  to  show  how 

^   simple  are  the  elements  going  to  make  up  valuation. 

^       The  subject  is  too  large  to  be  treated  here  in  more  than  an 

^  elementary  manner,  and  the  writer  has  condensed  much  of  the 

theory,  expanding  only  those  elements  which  seem  to  be  most 

~f  needed  by  engineers. 

ii^  After  a  short  discussion  of  value,  the  purposes  of  its  determina- 
13  tion,  and  directions  for  determining  it,  a  valuable  court  opinion 
by  Judge  Savage  of  Maine  has  been  given  in  full  as  embodying 
the  best  instructions  for  valuation  that  the  writer  has  yet  encoun- 
tered. Following  this  is  a  large  number  of  forms  developed 
for  the  purpose  of  making  more  perfect  inventories,  and  for  as- 
sembling and  classifying  the  data  in  proper  order.  Many  of  these 
forms  have  been  reproduced  photographically,  by  permission,  from 
copies  of  those  which  have  been  developed  and  used  by  the  Joint 
Engineering  Staff  of  the  Wisconsin  Railroad  Commission  and  the 
Wisconsin  Tax  Commission,  to  the  engineer  of  which,  Professor 
W.  D.  Pence,  the  author  wishes  to  express  his  thanks  for  placing, 
these  at  his  disposal.     Others  have  been  devised  by  the  writer 

iii 


d  %<'»<'  t  r-'    4  •  ' 


iv  .  PREFACE 

as  the  result  of  upwards  of  fifteen  years'  experience.  After  a 
short  chapter  devoted  to  the  cost  of  appraising  a  property,  the 
value  of  Good  Will  and  "  Going  Concern  Value  "  are  defined  and 
discussed,  imd  the  opinions  of  Commissions,  Courts,  and  indi- 
viduals given  at  some  length. 

Much  space  is  devoted  to  depreciation,  as  it  is  felt  that  en- 
guieers  are  more  in  doubt  on  this  point  than  on  any  other  question 
comiected  with  valuation.  Especial  attention  is  called  to  methods 
suggested  for  calculating  depreciation  and  to  the  compound  in- 
terest tables  for  use  in  calculating  sinking  funds,  present  values, 
etc.  This  chapter  is  followed  by  one  in  which  amortization  is 
discussed,  another  on  the  handling  of  depreciation  funds  and  a 
short  chapter  on  appreciation. 

Franchises  are  given  considerable  space,  and  a  study  of  the  court 
decisions  quoted  will,  it  is  hoped,  go  far  toward  elucidating  this  very 
troublesome  subject.  Capitalization  and  control  of  public  utilities 
are  given  short  discussions,  the  whole  being  completed  by  quota- 
tions in  full  of  some  of  the  more  important  decisions  of  the  courts, 
and  the  syllabuses  of  many  others  of  only  slightly  less  value. 

No  excuse  is  offered  for  the  large  number  of  quotations  from 
court  decisions  and  from  other  papers,  scattered  throughout  the 
book,  for  it  is  a  part  of  the  plan,  where  possible,  to  fortify  each 
statement  with  a  judicial  ruling.  It  has  been  the  author's  inten- 
tion to  bring  together  in  one  volume  the  gist  of  all  important 
rulings  bearing  upon  the  subject  of  valuations,  so  that  the  lajman 
may  have  access  thereto  and  learn  where  they  apply.  There  is  a 
large  amount  of  literature  hidden  away  among  the  papers  of  the 
technical  societies  that  bears  directly  on  the  subject,  and  a  con- 
siderable amount  of  writing  on  appraisals  will  be  found  among  the 
reports  of  the  various  commissions  having  control  of  public  util- 
ities. Abstracts  from  both  of  these  sources  have  been  used 
liberally.  The  author  desires  to  express  his  acknowledgment  to 
Mr.  T.  Comincrford  Martin  for  many  valuable  suggestions. 

HORATIO  A.  FOSTER. 
Mauch  1,  1912. 


TABLE    OF    CONTENTS 

INTRODUCTION 

PAGES 

Overcapitalization  —  Depreciation  —  Franchises  —  Prices  paid  for  orig- 
inal plant  too  high  —  Promoters  expected  to  make  their  projits  on 
manipulation  of  stock  —  Watered  stock  and  bonds  —  Physical 
property  worn  out  —  Reorganizations  continued  —  Public  Utilities 
Commissions  —  Fair  physical  value  —  No  issue  of  new  securities 
allowed  —  Receiverships  found  necessary  —  Indeterminate  fran- 
chise—  Appraisals  of  physical  property  —  Physical  valuation  of 
Buffalo  property  by  B.  J.  Arnold  —  Cost  to  reproduce  new  —  Fran- 
chises, good  will,  or  development  expense 1-5 

CHAPTER  I 

VALUE 

Value,  definition  of  —  Market  value  —  Taxable  value  —  Commercial 
value  —  Professor  Adams's  definition  —  H.  E.  Riggs's  definition  — 
Matheson's  definition —  Earning  value  —  Vast  profits  due  to  special 
knowledge  of  proprietors  —  Maximum  rate  of  compensation  fixed 
by  law  —  Capitalized  with  reference  to  income  —  Value  of  prop- 
erty determined  by  its  productiveness  —  Value  not  determined  by 
cost  of  construction  —  Division  of  values;  physical,  intangible  — 
Physical  value  should  include  all  closely  connected  nonphysical 
charges  —  Worth  defined — Public  utilities  subject  to  regulation 
by  Supreme  Court — No  longer  allowed  to  overcapitalize — ^Cor- 
poration owes  its  existence  to  state  —  Remedy  suggested  for  re- 
lieving the  profitable  corporation  —  Appraisers  requested  to  favor 
parties  —  Only  one  legitimate  value  —  Riggs  on  "  Valuation  of 
Public  Utilities  Property"  —  Present  or  depreciated  value  —  Re- 
production, new,  must  be  in  same  form  as  at  date  of  appraisal  — 
Cost  of  replacement  not  applicable  to  property  —  Valuation  for 
taxes  less  than  valuation  for  rates  —  Capitalization  should  repre- 
sent original  cost  to  holders — Original  cost  of  property  —  Corpo- 
rations result  of  combinations  —  Combinations  based  upon  earning 
value  rather  than  on  physical  worth  —  Valuation  and  original 
cost  of  railroads  in  Washington,  Gillette  —  In  New  York  figures 
raised  to  cover  face  of  stock  and  bonds  —  Bonds  issued  for  physi- 
cal  propei'ty ;   stock  for  franchises  —  Reasonable   return   allowed 


vi  TABLE  OF  CONTENTS 

PAQEB 

upon  original  cost  —  Cost  of  new  article  formerly  added  directly 
to  capital  —  Reproduction  cost  new  basis  of  most  modern  appraise- 
ments—  Reproduction  value  should  include  going-  concern  value 

—  Prices  used  depend  upon  judgment  of  appraiser —  Prices  at  date 
of  appraisal  used  in  Consolidated  Gas  Case  —  Opinion  of  Judge 
Savage —  Average  price  for  term  of  building  most  proper —  Prices 
to  be  used  those  vpithin  a  period  necessary  for  construction  —  If 
property  has  increased  in  value,  company  entitled  to  such  increase 

—  Basis  of  reasonableness  of  rates  must  be  fair  value  of  property 

—  Company  entitled  to  fair  return  on  value  of  property  used  — 
Public  not  entitled  to  demand  more  than  services  are  reasonably 
worth — Cost  of  reproduction  must  be  considered  in  a  way 
humaTily  possible  —  Valuing  at  present  date  must  include  all 
appreciations  —  Conceptual  starting  plant  must  be  reduced  by 
depreciation  —  Overhead  charges —  Heavy  construction  in  hands 
of  general  contractor  —  Engineering  and  supervision  treated  as 
overhead  charge  —  Organization  expense  —  Organization,  admin- 
istration, brokerage,  emergency  items,  contingencies  —  Legal 
expense  —  Engineering  includes  architecture  and  engineering, 
supervision,  etc.  —  Interest  during  construction  —  Taxes  and 
insurance  during  construction  —  Brokerage  and  discount  —  Per- 
centage to  be  added  for  underestimating  —  Public  service  com- 
missions say  bond  discount  must  not  be  charged  to  construction 

—  Company  cannot  capitalize  discount  —  Capitalizing  discount  on 
stocks  wholly  indefensible  —  Overhead  charges  on  New  York 
Subway  equipment  —  Overhead  charges  on  original  value  of 
Oregon  railroads  —  Rates  of  overhead  charges,  Milwaukee  Three- 
cent  Fare  Case  —  Overhead  charges  in  same  case  by  M.  E.  Cooley 

—  Overhead  charges  on  valuation  of  Michigan  railways  by  M.  E. 
Cooley  —  Scrap  or  salvage  value  —  Scrap  value  same  as  junk  value, 
salvage  value  greater  than  that  for  junk  —  Wearing  or  service 
value  —  Remaining  service  value  —  Cost  of  reproduction  one  way 
of  ascertaining  present  value  —  Present  value  may  be  wearing 
value  with  appreciation  added  —  Present  value  is  the  worth  at 
time  of  appraisal  —  Present  value  demanded  by  courts  for  sale  to 
municipality  —  Intangible  value — Development  expense  includes 
all  expenses  incidental  to  building  up  the  corporation  —  Franchise 
or  license  —  Going  concern  value  —  Good  will  means  the  value 
gained  in  competition  with  other  like  concerns        ....  6-26 

riTATTETl    II 
PURPOSES   OF   VALUATION 

For  taxing  coriKirations  —  For  regulating  rates  —  For  the  issuing  of 
bonds —  For  determining  total  capitalization —  For  sale  an<l  trans- 


TABLE  OF  CONTENTS  vii 

FAOEa 

fer  of  property  —  For  establishing  a  uniform  system  of  account- 
ing—  For  the  general  information  of  the  corjjoration  and  the 
public  —  For  the  preparation  of  additions  and  extensions  —  Valua- 
tion of  a  factory  —  Professor  Adams  on  valuation  for  determining 
reasonableness  of  price  —  Opinion  of  railroad  writers  on  physical 
valuation  —  Original  cost  cannot  control  —  Capacity  to  earn  and 
earning  —  Fair  value  is  in  excess  of  cost  of  reproduction  —  Com- 
pany does  not  own  house  connections — Company  to  blame  for 
small  values  if  it  does  not  produce  the  books  —  Development 
charges  small  in  comparison  with  that  of  physical  property  — 
Legitimate  to  capitalize  good  will  or  going  concern  value —  Basis 
on  which  utilities  are  regulated  in  Wisconsin  is  physical  valua- 
tion —  No  value  given  to  franchise  or  good  will  in  Wisconsin 
unless  paid  for  in  cash  —  Decisions  of  Wisconsin  Commissions 
practically  final 27-32 


CHAPTER  III 

DIRECTIONS   FOR   THE   VALUATION   OF   TANGIBLE 
PROPERTY 

For  the  cost  to  reproduce  new,  get  an  itemized  inventory  —  Apply 
average  prices  to  inventory  —  New  material  must  be  of  similar 
kind  —  Percentage  to  be  added  for  contractor's  profit —  Percentage 
to  be  added  for  incidentals  and  other  overhead  charges  —  Scrap 
value  determined  as  fair  market  value  for  old  material  —  Scrap 
values  in  an  appraisal  can  be  covered  by  a  change  in  the  rate  of 
depreciation  —  Salvage  vahie  that  value  below  which  property  will 
not  be  dejireciated  while  in  good  use  —  Wearing  or  original  service 
value  —  Forms  of  depreciation  —  Service  value  and  physical  de- 
velopment charges —  Permanence  of  valuation        .         .         .  33-S 

CHAPTER   IV 
INSTRUCTIONS   FOR  VALUATION 

Instructions  given  by  Judge  Savage  in  the  case  of  Topham  Water 
District  v.  Maine  Water  Company  —  Condemnation  and  appraisal 
of  a  portion  of  a  system  of  waterworks  —  Damages  for  plant, 
property,  and  franchises  taken  —  Damages  for  severenoe  —  Valua- 
tions determined  under  the  principles  of  eminent  domain  —  Basis 
of  reasonable  rates  the  fair  value  of  property  —  That  the  structure 
taken  is  in  use  enhances  the  value  —  Valuation  of  plant  as  affected 
by  the  franchises  —  Actual  cost  bears  on  reasonableness  of  rates 
—  If  present  value  is  greater  than  the  cost,  the  owner  is  entitled 
to  the  benefit — Reasonable  depends  on   many  circumstances  — 


viii  TABLE  OF  CONTENTS 

PAGES 

Reasonableness  of  rates  relates  to  both  owner  and  customer  — 
Kates  must  be  reasonable  to  customer  in  any  event  —  Company 
cannot  charge  more  than  services  are  reasonably  worth — Profits 
which  exceed  fair  return  on  property  involve  unreasonable  rates 
—  Ileasouableness  of  rates  to  be  determined  by  preponderance  of 
evidence  —  Market  prices  on  date  of  appraisal  or  for  a  period  long 
enough  to  construct  the  plant  to  be  used  —  Interest  during  con- 
struction to  be  added  —  Not  constitutionally  competent  for  legis- 
lature to  prescribe  rule  for  damage  —  One  element  of  value  is  cost 
to  customers  of  serving  themselves  —  Worth  of  service  is  the  worth 
to  customers  as  a  community  of  water  takers  —  Should  charge 
property  for  only  its  fair  proportion  of  earnings —  Appraisal  must 
be  made  on  the  principles  of  eminent  domain  as  voted  on  —  In- 
structions given  by  Judge  Savage  in  the  case  of  Kennebec  Water 
District  v.  City  of  Waterville  and  Others  —  Construction  cost  is 
legal  evidence  —  Request  that  value  of  plant  be  held  not  to  exceed 
cost  to  reproduce  —  Cost  of  reproduction  not  conclusive  —  Inquiry 
to  be  limited  to  replacing  present  system  by  one  substantially  like 
it  —  Allowance  should  be  made  for  the  fact  that  system  is  going 
concern  —  If  system  is  exclusive,  element  of  good  will  should  not 
be  considered  —  Compensation  should  be  made  for  franchises, 
rights,  and  privileges  —  Value  of  franchise  depends  on  its  net 
earning  power,  present  and  prospective  —  Value  assessed  is  value 
to  seller,  not  to  buyer — Owner  of  a  franchise  will  be  entitled  to 
charge  only  reasonable  rates 37-40 


CHAPTER   V 
FORMS  FOR  USE  IN  MAKING  A   VALUATION 

Inventory  of  miscellaneous  property  to  be  made  on  letter  size  sheets  — 
Classification  to  be  left  to  office  force  —  Classes  of  property  that 
can  be  divided  for  listing  —  House  connections  to  be  valued 
although  not  belonging  to  company  —  Division  of  factories  for 
inventory  —  Class  of  men  for  listing  and  checking  —  Forms  for 
classification  and  assembly — Forms  for  tabulating  final  result  of 
appraisal  —  Valuation  of  real  estate  —  Sample  form  for  detailed 
summary  —  Sample  of  form  for  final  summary  —  Value  of  real 
estate  belonging  to  a  factory — Ajipreciation  of  land  values  — 
Hcvenne  instructions  for  charging  profits  on  real  estate  —  Value 
of  factory  site  —  Value  of  a  railroad  terminal  —  Discussion  of 
incn'u.se  in  land  values  by  Commissioner  Maltbie  in  the  matter 
of  tin;  Quecnsborough  Oas  and  Electric  Case  —  Appreciation  and 
de|ireciatioii  should  be  treated  alike  and  be  treated  as  income  and 
expense — I'roljlem  (tf  handling  dej)reciaf  ion  and  appreciation  — 
Note  on  title  in  fee  —  Forms  for  use  in  ajipraisal  of  real  estate  — 


TABLE  OF  CONTENTS  ix 


Appraisal  of  buildings  —  Sample  forms  for  use  in  appraising  land 
and  right  of  way  and  real  estate  —  Methods  of  appraising  build- 
ings in  different  sections  of  the  country  —  Measurement  of  build- 
ings for  computing  value  —  Corrugated  iron  buildings  on  Pacific 
Coast  —  Method  of  valuing  concrete  buildings  —  Forms  for  use 
in  the  appraisal  of  buildings  —  Sample  form  of  preliminary  build- 
ing statement  —  Sample  form  of  summary  for  use  in  the  appraisal 
of  buildings  —  Railroad  valuation  —  Sample  form  of  final  sum- 
mary for  use  in  assembling  final  result  in  railroad  appraisals  — 
Plan  adopted  for  finding  physical  value  of  Wisconsin  railroads  — 
Cost  of  reproduction  —  Present  value  of  the  physical  properties 

—  Condition  percentage  —  Determination  of  land  value  —  Right- 
of-way —  Price  per  acre  —  Right-of-way  value  per  acre  —  Deter- 
mining value  of  land  for  other  purposes  —  Grades  and  curves  not 
considered  in  the  valuation  —  Industrial  tracks — Apportionment 
of  rolling  stock  of  interstate  roads  —  Forms  for  use  in  a  railroad 
appraisal —  Revised  forms  for  steam  railroads  —  Sample  form  for 
use  in  appraising  tunnels —  Sample  form  for  use  in  appraising  the 
grading  —  Sample  form  for  use  in  appraising  draw  bridges  — 
Sample  form  for  use  in  appraising  bridges  —  Sample  form  for  use 
in  appraising  pile  bridges  and  timber  trestles  —  Sample  form  for 
use  in  appraising  frogs,  switches,  and  railroad  crossings  —  Sample 
form  for  use  in  appraising  track  fastenings  and  other  material  — 
Sample  form  for  use  in  appraising  culverts  —  Sample  form  for  use 
in  appraising  ties — Sample  form  for  use  in  appraising  rails  and 
mileage  —  Sample  form  for  use  in  appraising  ballast,  track  laying, 
and  surfacing —  Sample  form  for  use  in  appraising  roadway  tools 

—  Sample  form  for  use  in  appraising  fencing  and  cattle  guards  — 
Sample  form  for  use  in  appraising  platforms,  walks,  paving,  and 
curb  —  Sample  form  for  use  in  appraising  crossings  and  signs  — 
Sample  form  for  use  in  appraising  interlocking  plants  —  Sample 
form  for  use  in  appraising  signal  apparatus  —  Sample  form  for 
use  in  appraising  stations,  buildings,  and  fixtui'es  —  Sample  form 
for  use  in  appraising  telegraph  and  telephone  lines  —  Sample  form 
for  use  in  appraising  shop  buildings  and  structures' —  Sample 
form  for  use  in  appraising  general  office  buildings  and  fixtures 

—  Sample  form  for  use  in  appraising  cinder  pits  —  Sample  form 
for  use  in  appraising  engine  houses  and  turntables  —  Sample 
form  for  use  in  appraising  shop  machinery  and  tools  —  Sample 
form  for  use  in  appraising  water  stations  —  Sample  form  for  use 
in  appraising  fuel  stations  —  Sample  form  for  use  in  appraising 
elevators  and  warehouses  —  Sample  form  for  use  in  appraising  ore 
docks  —  Sample  form  for  use  in  appraising  dock  and  wharf  prop- 
erty—  Sample  form  for  use  in  appraising  stockyards-track  and 
stock  scales  —  Sample  form  for  use  in  appraising  miscellaneous 
structures  —  Sample   form   for  use  in    appraising    locomotives  — 


TABLE  OF  CONTENTS 


Sample  form  for  use  in  appraising  passenger  train  cars — Sample 
form  for  use  in  appraising  freight  train  cars  —  Sample  form  for 
use  in  appraising  general  material,  blanket  form — Sample  form 
for  use  in  appraising  miscellaneous  material  —  Sample  form  for 
use  in  appraising  a  section  of  railroad  —  Form  for  use  in  apprais- 
ing stores  and  supplies  and  material  in  stock  —  Opinions  of  courts 
on  railroad  valuations  —  Professor  Adams's  definition  of  commer- 
cial value  of  property  —  San  Diego  Land  and  Town  Co.  v.  City  of 
National  City — Value  of  a  railroad  more  than  the  value  of  its 
separate  parts  —  Basis  of  reasonableness  of  rates  the  value  of  the 
property  used  —  Public  entitled  to  demand  that  no  more  be  ex- 
acted than  services  worth  —  Valuation  of  street  railways  —  Form 
for  use  in  appraising  an  electric  railway — Information  required 
in  the  valuation  of  a  street  railway  property — Ford's  list  of  tan- 
gible and  intangible  property  of  street  railways  —  Valuation  of  a 
power  plant —  List  of  power  plant  equipment  —  Sample  of  forms 
for  use  in  making  field  inventory  of  power  plant  equipment  — 
Sample  form  for  field  inventory  of  boilers  —  Sample  form  for  field 
inventory  of  boiler  feed  and  auxiliai'ies — Sample  form  for  field 
inventory  of  engines  —  Sample  forms  for  field  inventory  of  gen- 
erators and  motors  —  Sample  form  for  field  inventory  of  switch- 
boards—  Sample  form  for  field  inventory  of  storage  batteries  — 
Sample  form  for  field  inventory  of  transformers  —  Sample  form 
for  field  inventory  of  miscellaneous  electrical  apparatus  —  Sample 
form  for  field  inventory  of  power  plant,  miscellaneous  —  Sample 
form  for  detailed  summary  of  power  station  equipment  — 
Sample  form  for  use  in  summarizing  the  valuation  of  a  power 
plant  —  Appraisal  of  a  water  power  privilege,  either  undeveloped 
or  abandoned  —  Location  of —  Use  to  which  power  is  to  be  put  — 
Condition  of  the  market,  near  or  far  —  Value  of  undeveloped  water 
power  j)rivilege  determined  by  comparison  with  producing  and 
operating  similar  amount  of  power  in  similar  territory —  Steps  to 
be  followed  in  valuing  an  undeveloped  water  power  privilege  — 
Difference  of  opinion  as  to  rates  at  which  to  capitalize  difference 
—  Appraisal  of  damages  to  developed  water  power  —  Damage  to 
a  water  power  by  diversion  of  part  of  the  flow — Damage  to  a 
privilege  that  produces  a  varying  amount  of  power —  Points  to  be 
detfjrniined  in  calculating  damage  to  water  power  due  to  a  part 
diversion  —  Valuing  an  hydroelectric  property — Difference  in 
water  power  properties  located  in  the  east  and  the  west  —  Ex- 
pense of  roads  and  trails  in  the  far  west  —  Importance  of  the 
commissary  department  in  far  west — Penstocks,  headworks, 
reservoirs,  canals,  tunnels,  flumes,  and  forebay  —  Water  wheels 
and  governors —  Klcctric  generators  and  plant — Substations  and 
transniission  system  —  Sample  form  for  use  in  appraising  an  hydro- 
electric plant,  summary  —  List  of  information  as  to  dimensions 


TABLE  OF  CONTENTS  xi 

PAGES 

required  in  determining  the  value  of  the  hydraulic  portion  of  an 
hydroelectric  plant  —  Sample  form  for  use  in  field  inventory  of 
hydroelectric  plants,  turbines  —  Valuation  of  a  waterworks  prop- 
erty—  Form  of  summary  for  use  in  valuing  a  waterworks  prop- 
erty—  Valuing  house  connections  not  owned  by  the  company  — 
Sample  form  for  use  in  valuing  waterworks  pumps  —  Sample  form 
for  use  in  valuing  waterworks  mains;  can  be  used  for  gas  mains 

—  Valuation  of  a  telephone  property  —  Variation  in  the  deprecia- 
tion on  telephone  properties  —  Rules  used  for  appraising  telephone 
properties  use  in  the  Michigan  Appraisal  —  Samjsle  form  of  sum- 
mary for  use  in  appraising  a  telephone  property  —  Court  decisions 
on  telephone  valuations — Valuing  an  electric  light  plant  — 
Schedule  of  accounts  of  the  National  J<>lectric  Light  Association 
which  should  be  closely  followed  in  listing  property  in  appraisal 
of  a  station  —  Sample  form  of  summary  for  use  in  appraising  an 
electric  light  station  —  Valuing  a  gas  property  —  Excavating  at 
street  corners  to  determine  size,  quality,  and  condition  of  pipe  — 
Sample  form  of  summary  for  use  in  valuing  a  gas  property  — 
List   of   apparatus   in   generating   and   distributing  system,  gas 

—  Valuing  a  manufacturing  proj^erty  —  Sample  form  of  summary 

for  use  in  valuing  a  manufacturing  property   .         .         .         .        41-130 

CHAPTER  VI 
THE   COST   OF   VALUING   A   PROPERTY 

What  kind  of  valuation  wanted  —  Safe  estimate  for  cost  of  valuation 

—  Time  taken  for  an  appraisal  —  Inventories  may  be  prepared  by 
owners  —  Factory  property  can  be  inventoried  by  shop  force       131-132 

CHAPTER  VII 

VALUE   OF   GOOD  WILL,    GOING   CONCERN,   OR   GOING 

VALUE 

Lord  Elden's  definition  of  good  will  —  Justice  Moody's  opinion  of 
going  concern  value  —  John  W.  Alvord's  definition  of  going 
value  —  English  syndicates'  method  of  determining  the  value  of 
good  will  —  Allowance  for  good  will  not  applicable  where  public 
utilities  is  a  monopoly — Appraising  going  value  in  waterworks 

—  Wisconsin  Commission  allows  reasonable  expenditure  of  money 
for  going  concern  —  Judge  Savage  on  going  concern  —  Going 
value  first  i-ecognized  in  Kansas  City  Water  Case  —  Definition  of 
going  concern,  going  value,  etc.,  should  be  taken  up  by  technical 
societies,  by  committees,  etc.  —  Earning  value  closely  allied  with 
going  value  —  Evidence  in  Madison  Gas  Case  on  going  value  — 


xii  TABLE  OF  CONTENTS 

PAGES 

Cost  of  reproduction  plays  most  important  part  in  determining 
value  —  Table  giving  earning  value  in  Madison  Gas  Case  —  Court 
and  other  references  on  good  will,  going  concern  value,  and  earn- 
ing value  —  John  W.  Alvord's  definition  of  going  value  —  William 
H.  Bryan's  definition  of  going  value — A  going  value  may  be 
negative  —  Judge  Lurton  on  good  will  in  Omaha  Waterworks 
Case  —  Professor  Mead's  definition  of  going  concern  —  Good  will 
of  successful  newspaper  —  Wynkoop  Kiersted  on  going  concern  133-146 


CHAPTEK   VIII 
DEPRECIATION 

Depreciation  defined  —  At  time  of  appraisal  all  forms  of  lessening 
worth  are  given  consideration  —  Depreciation  due  to  age  called 
decrepitude  —  Depreciation  due  to  development  in  the  art  called 
obsolescence  —  Depreciation  due  to  growth  and  necessity  of  re- 
placing old  apparatus  with  new  called  inadequacy  or  supersession 

—  Depreciation  due  to  wear  and  tear  is  so  named  —  Neglect  of 
repairs  at  the  date  of  appraisal  called  deferred  maintenance  — 
Rates  of  depreciation  matters  of  opinion  only  —  Deferred  main- 
tenance is  equal  to  the  amount  that  will  be  necessary  to  put  the 
apparatus  in  thoroughly  first  class  condition  —  Horse  a  good  ex- 
ample of  depreciation  —  No  property  that  wears  out  can  ever  be 
as  valuable  as  when  new  —  Chicago  railway  properties  must  be 
maintained  at  8r>%of  original  value  —  Depreciation  not  properly 
treated  in  the  past  —  Note  on  depreciation  from  Knoxville  Water 
Company  decision  —  Extract  from  Treasury  Decision  on  depre- 
ciation —  Depreciation  of  factories  —  Difficult  to  separate  depre- 
ciation from  wear  and  tear  in  factories  —  In  some  plants  repairs 
exactly  balance  depreciation  —  Surplus  earnings  should  be  devoted 
to  adding  to  jilaiit  so  as  to  keep  value  up  to  original  cost  —  Muni- 
cipal plants  seldom  have  a  depreciation  account —  Depreciation  of 
railroads  divided  into  three  classes — Professor  Adams's  idea  is 
that  depreciation  is  a  charge  to  operating  expense  —  Frederick  A. 
Delano  thinks  there  is  no  need  of  depreciation  charge  for  rail- 
roads—  Daniel  Royes  in  Railirai/  /I  r/p,  depreciation  is  an  accrued 
liability,  but  should  be  charged  against  income  and  not  against 
operating  expense  —  If  a  depreciation  rate  proves  to  be  too  large 
it  can  1)6  decreased  —  (Question  of  depreciation  a  question  of  value 

—  Depreciation  for  present  and  current  year  must  not  be  influ- 
enced by  the  past  practice  —  List  of  railroad  depreciation  accounts 

—  Common  carriers  must  show  depreciation  —  Public  service 
cririM)rations  must  show  depreciation  accounts  in  reports — Cor- 
porations may  show  depreciation  as  deduction  from  income  — 
l)cfinili(jM  of  terms  or  classes  of  depreciation  —  Decrepitude  — 


TABLE  OF  CONTENTS  xiii 

I'AUES 

Obsolescence,  cable  railway  one  of  the  best  examples  —  Inadequacy 
and  supersession,  new  and  larger  cars  iu  place  of  old  —  Wear  and 
tear,  ordinarily  charged  in  operating  expenses  —  V'aluation  is  an 
appraisal  at  some  set  date  —  Fifty-percent  method  of  depreciation 

—  Possible  to  arrive  at  amount  for  wear  and  tear  on  basis  of  per- 
centage of  original  service  value  —  Betterments  chargeable  to 
capital  account  —  Deferred  maintenance  chargeable  to  operating 
expense  —  Definition  of  deferred  maintenance  —  At  time  of  ap- 
praisal, estimate  of  deferred  maintenance  must  be  made  —  Not 
possible  to  keep  entire  plant  at  over  85%  of  original  value  — 
Receiver  of  Third  Avenue  Railway  declined  to  provide  depre- 
ciation fund  —  In  factories  charge  made  to  depreciation  iu  years 
of  good  earnings  only  —  Items  affecting  depreciation  of  railroads 
most  largely  —  Machine  tools  not  heavily  affected  by  depreciation 

—  Textile  machinery  affected  as  a  whole  by  obsolescence  —  Ele- 
ments of  depreciation  by  M.  E.  Cooley  —  Depreciation  due  to 
wear  and  tear  —  Depi-eciation  due  to  accidents  —  Depreciation  due 
to  inadequacy  —  Depreciation  due  to  obsolescence  —  Rules  for 
depreciating  railways  and  lighting  plants  in  Great  Britain  — 
Permanent  way  life  —  Cost  of  renewals  —  Basis  of  computation 
of  depreciation  allowance  —  Periodical  adjustment  —  Cables  — 
Overhead  equipment,  i.e.  trolley  wires  and  connections  —  Cars 
and  rolling  stock  —  General  plant  and  machinery — General  — 
Classification  of,  depreciation  by  Leonard  Metcalf — -Methods  of 
calculating  depreciation  —  Memorandum  regarding  lives  of  struc- 
tures by  Joint  Engineering  Staff,  Wisconsin  —  Power  plant  — 
Electric  light  and  railway  —  Telephone  equipment — Gas  plant  — 
Straight  line  method  —  Method  of  diminishing  values  —  Sinking 
fund  method  —  Tables  of  diminishing  values  —  Formulas  for 
calculating  present  worth,  sinking  fund,  condition  pier  cent  — 
Tables  of  compound  interest  to  one  hundred  years  —  Tables  of 
condition  per  cent  to  fifty  years  —  Sinking  fund  method  coming 
more  into  use  —  Rates  of  depreciation  —  On  railroads  appreciation 
sometimes  equals  depreciation  —  Depreciation  of  rails  and  track 
work  on  railroads  and  railways  —  Rail  wear  can  be  calculated  by 
number  of  wheel  movements  —  Massachusetts  rates  for  gas  and 
electric  light  plants,  municipal  —  Wisconsin  method  of  working 
from  condition  per  cent  —  Wisconsin  Railroad  Commission  gives 
average  life  of  plants —  Rates  of  depreciation  for  factories  depend 
largely  on  amount  of  earnings — Rate  of  depreciation  on  Chicago 
railways  by  Stone  and  Webster  —  Table  of  rates  of  depreciation 
by  Henry  Floy  —  Table  of  comparison  of  rates  in  IMilwaukee 
Three-cent-fare  Case  —  Rates  used  by  Marwick,  Mitchell  &  Co. 
on  large  railway  system  —  Table  of  comparison  of  rates  of 
depreciation  on  railway  by  George  W.  Cravens  —  Table  of  rates  of 
depreciation  for  given   service   by  George   W.    Cravens  —  Table 


xiv  TABLE  OF  CONTENTS 

PAGES 

of  life  and  depreciation  of  telephone  wires  —  Table  of  life  and 
depreciation  of  telephone  plant  from  "data"  —  Table  of  United 
States  Government  allowance  for  depreciation  on  buildings  — 
Life  of  items  of  physical  plant  —  Waterworks  —  Distribution 
system  for  waterworks  —  Power  plant  equipment  —  Buildings  — 
Electric  liglit  and  railways  —  Telephone  equipment  —  Gas  plants 
—  Table  of  limits  of  useful  life  of  waterworks  by  Leonard  Met- 
calf  —  Renewals  in  Chicago  Traction  System  —  Renewals  —  Gen- 
eral rulings  —  Division  "  D  "  track  —  Division  "  E  "  electrical 
transmission  system  —  Division  "K"  cars — Division  "G"  build- 
ings—  Exceptions  —  Division  "I"  power  plant  machinery  and 
equipment  —  Substation  machinery  and  equipment  —  Shop  ma- 
chinery and  tools  —  Division  "  P "  tunnels,  bridges,  and  via- 
ducts       147-218 


CHAPTER   IX 

AMORTIZATION 

Definition  of  amortization  —  Amortization  of  franchises  and  capital  — 
Amortization  of  development  expenses  —  Amortization  of  leases 

—  Amortizing  the  investment — Amortization  of  long  and  short 
term  franchises —  Amortization  of  franchises  and  other  intangible 
property —  Returning  capital  to  stockholders  in  shape  of  dividends 

—  Pul)lic  Service  Commission  of  New  York  on  amortization  ac- 
counts—  Accrued  amortization  of  capital  —  General  amortization 

—  Amortization  of  laTided  capital — Amortization  of  patents  — 
Treasury  decision  on  amortization  of  patents  ....     219-225 


CHAPTER   X 
HANDLING  OF  DEPRECIATION  FUNDS 

Claasifying  methods  of  handling  depreciation  funds  —  Depreciation 
fund  credited  to  surplus  or  deposited  in  local  bank  —  Depreciation 
fund  invested  in  outside  securities — Borrowing  from  deprecia- 
tion fund  instead  of  from  outside  parties — Rulings  on  deprecia- 
tion reserves  by  Wisconsin  Commission  —  Amortization  reserve  — 
Optional  reserves  —  Depreciation  —  Rulings  of  State  Railway 
Commission  of  Nebraska — Discussion  by  Herbert  G.  Stockwell 
of  reserves — Depreciation  reser\'es  by  \V.  B.  Jackson  —  Opinions 
of  courts  on  dcpn-ciation  reserves  —  Case  of  London  County  Coun- 
cil V.  Henry  Kdwards,  Surveyor  of  Taxes         ....      226-234 


TABLE  OF  CONTENTS  xv 

CHAPTER  XI 
APPRECIATION 


PAGES 


Land  often  appreciates  in  value  —  Increase  in  value  of  factory  sites 
—  Interstate  Commerce  Commission  on  appreciation  in  laud 
values 235 


CHAPTER  XII 

FRANCHISE 

Definition  of  franchise  —  Statement  of  the  United  States  Supreme 
Court  on  franchise  —  Statement  of  Judge  Savage  of  Maine  on 
franchise  —  Waterville  Water  Case  —  Statement  of  Judge  Savage 
in  Brunswick  Case —  Franchise  a  privilege  given  by  a  community 

—  Perpetual  franchises  —  Objections  to  perpetual  franchises  — 
Advantages  of  perpetual  franchise  —  Disadvantages  of  short-term 
franchises  —  Provisions  for  purchase  of  property  under  a  franchise 

—  Limited-term  franchise  always  accompanied  by  conditions  — 
Indeterminate  franchises  —  Indeterminate  franchise  as  such  gives 
right  of  purchase  at  fair  value  —  Franchises  capitalized  —  Treat- 
ment of  franchises  in  Oregon  —  Court  and  law  references  to  fran- 
chises—  Law  creating  Public  Service  Commissions  in  New  York 

—  Wisconsin  Railroad  Commission  —  Consolidated  Gas  Company 
Case  —  Smith  i'.  Ames  —  Benezette  Williams  in  discussion  of 
Alvord's  paper,  American  Waterworks  Association  —  Change  of 
opinion  of  Supreme  Court  —  Monongahela  Co.  i'.  United  States  — 

Long  Island  Water  Supply  Co.  v.  Brooklyn  —  IMontgomery 
County  V.  Schuylkill  Bridge  Co.  —  Franchise  tax  as  in  New  York 

—  Decision  of  court  on  method  of  computing  —  Example  of 
method  of  computing  based  on  Third  Avenue  Case — Chicago 
method  of  computing  franchise  value  —  Method  of  determining 
value  of  unexpired  franchises  by  Professor  Adams,  Detroit  — 
Right  to  tax  by  Chief  Justice  INIarshall 236-251 


CHAPTER  XIII 
CAPITALIZATION 

Capitalization  of  Public  Service  Corporation  must  represent  actual 
value  of  property  used  — Cash  cost  of  creating  going  concern  value 
can  be  capitalized  —  Additions  to  plant  to  be  made  from  new 
capital,  not  from  surplus  earnings  —  If  authorities  set  the  rate 
they  should  also  guarantee  against  competition  —  Chicago  divides 
surplus  earnings  with  company  —  Boston  allows  increase  in  divi- 


xvi  TABLE  OF  CONTENTS 

PAGES 

deiid  for  decrease  in  rate  —  Rate  of  return  set  in  Consolidated  Gas 
Case  —  Statement  of  Massachusetts  Gas  and  Electric  Light  Com- 
missioners in  Beverly  Gas  Case  —  Reinvestment  of  surplus  — ■ 
Value  accruing  to  stock  issued  for  bonus  represents  overcharge  to 
customers  —  Opinions  of  courts  and  writers — Knoxville  Water 
Co.  Case  —  Smith  v.  Ames  —  Valuation  of  railroads,  Railroad  Aye 
Gazette  —  Everett  AV.  Burdett  in  Worcester  Electric  Co.  Case  — 
Knoxville  Water  Co.  Case 252-258 

CHAPTER  XIV 

CONTROL   OF   PUBLIC   UTILITIES 

Method  of  control  of  Public  Utilities  has  changed  —  List  of  Public 
Service  Commissions,  State  —  List  of  Public  Service  Commissions, 
Municipal  —  New  York  Public  Service  Commissions  —  Powers  of 
New  York  Public  Service  Commissions  by  M.  R.  Maltbie — Capi- 
talizing of  franchises  not  allowed  —  Capitalization  should  have  a 
direct  relation  to  value  —  Net  earnings  not  proper  basis  for  deter- 
mining capitalization — Bonds  should  not  exceed  an  amount  on 
which  the  earnings  will  pay  interest 259-263 

CHAPTER  XV 
COURT  DECISIONS 

William  R.  Wilcox  et  al.  v.  Consolidated  Gas  Co.  of  New  York  City, 
in  full  —  City  of  Knoxville  i-.  Knoxville  Water  Co.,  in  full  —  Na- 
tional Waterworks  Co.  v.  Kansas  City,  in  full  —  Instructions  in 
Kennebec  Water  Company  Case,  in  full  —  Montgomery  County  v. 
Schuylkill  Bridge  Co.  Syllabus — San  Diego  Land  and  Title  Co. 
V.  City  of  National  City.  Syllabus  —  Covington  and  L.  Turnpike 
Co.  V.  Sanford  et  al.  Syllabus  —  Monongahela  Navigation  Co.  v. 
United  States.  Syllabus  —  Cotting  v.  Kansas  City  Stock  Yards 
Co.  Syllabus  —  Smyth,  Attorney  General,  et  al.  v.  Ames,  et  al. 
Syllabus    .        .       '.        .        .    * 264-329 

BIBLIOGRAPHY 

Railroad  valuation  —  AVaterworks  valuation  —  Depreciation  —  Miscel- 

laueouB      330-332 


ENaiNEERING  VALUATIOI^ 

INTRODUCTION 
VALUATION  OF  PUBLIC   UTILITIES  AND   FACTORIES 

In  recent  years  many  of  the  corporations  owning  public  utilities 
properties  have  come  to  financial  grief,  due  largely  to  overcapitaliza- 
tion, to  the  fact  that  the  heavy  depreciation  has  come  to  a  head, 
and  to  the  further  fact  that  the  pubhc  has  taken  overcapitaliza- 
tion into  account  in  making  extensions  of  franchises.  In  organiz- 
ing these  corporations,  in  many  cases  the  franchises  have  been 
capitalized  as  heavily  as  the  promoters  thought  they  would  stand, 
and  in  few  if  any  companies  has  an  amortization  fund  been  estab- 
lished to  take  care  of  the  decreasing  value  of  a  franchise.  It  is  a 
fact,  also,  that  in  but  very  few  cases  have  steps  been  taken  to 
provide  for  the  depreciation  of  the  physical  plant  that  has  been 
going  on  steadily  and  has  been  recognized  at  last  as  one  of  the  very 
large  items  of  expense  that  must  be  met. 

Again,  in  but  few  cases  have  profits  been  as  large  as  the  original 
promoters  had  calculated,  so  that  the  franchise  results  have  been 
meager  indeed.  In  a  great  majority  of  companies,  where  a  number 
of  properties  have  been  merged  into  one,  the  prices  paid  for  the 
original  operating  properties  have  been  very  high,  as  the  promoters 
of  such  consolidations  seem  to  have  thought  that  the  combinations 
would  lead  to  such  economies  as  to  pay  good  dividends  on  almost 
any  amount.  And  again,  it  must  be  said  that  in  many  cases  the 
original  promoters  expected  to  make  their  profits  on  the  manipula- 
tion of  the  securities  rather  than  upon  any  earnings  that  might 
accrue  to  the  new  corporation.  For  these  and  other  reasons  many 
of  the  public  utilities  corporations  have  been  so  heavily  loaded 
with  so-called  watered  stock,  and  many  of  them  with  watered 
bonds,  that  the  anticipated  earnings  have  not  been  enough  to  pay 
the  interest  on  the  bonds,  to  say  nothing  of  paying  dividends  on 
the  stock.  In  some  cases,  however,  dividends  were  paid  for  a 
while  after  the  organization,  as  the  earnings  were  quite  large  and 
depreciation  had  not  been  enough  to  become  troublesome.     In  no 

1 


2  EXGIXEERIXG  VALUATION 

case  of  public  utilities  known  to  the  writer  had  provision  originally 
been  made  to  cover  depreciation. 

As  the  physical  property  has  worn  out,  or  for  economic  reasons 
has  had  to  be  replaced  by  newer  forms  of  apparatus,  expenses  have 
increased  to  such  an  extent  that  the  earnings  have  seldom  been 
enough  to  meet  the  extra  requirements,  and  the  necessary  new 
capital  has  been  secured  through  reorganization.  In  such  reor- 
ganizations bankers  have  taken  securities  at  a  very  considerable 
discount,  demanding  also  a  large  bonus  of  stock.  These  reorganiza- 
tions have  continued  until  the  present  time,  but  the  people  begin 
to  look  upon  the  value  of  such  securities  with  considerable  doubt, 
and,  to  protect  themselves,  have,  in  many  states,  pressed  the  matter 
of  public  utilities  commissions  in  their  respective  legislatures, 
resulting  in  the  establishment  of  new  commissions  or  the  enlarge- 
ment of  the  powers  of  the  already  existing  railroad  commissions 
to  cover  the  new  demand. 

In  the  majority  of  cases,  the  new  powers  conferred  upon  these 
commissions  give  them  control  of  the  issue  of  all  bonds  and  stocks 
by  the  public  utilities,  and,  before  allowing  an  issue  of  any  kind  of 
securities,  demands  are  made  for  appraisals  of  the  physical  prop- 
erty of  the  corporations. 

In  Massachusetts  the  law  demands  that  the  Commission  shall 
determine  if  the  fair  physical  value  of  the  property  owned  equals 
or  exceeds  the  existing  securities.  Such  fair  value  means  in  all 
cases  a  present  or  depreciated  value,  and  no  issue  of  new  securities 
is  allowed  unless  the  value  of  the  physical  property  equals  or  ex- 
ceeds that  of  the  par  value  of  the  existing  securities.  Even  when 
the  value  of  the  property  exceeds  the  par  value  of  securities,  new 
issues  are  only  allowed  to  be  sold  at  the  then  existing  market  price, 
which  in  that  particular  commonwealth  is  nearly  always  above  par. 
It  is,  therefore,  practically  impossible  to  get  any  so-called  water 
into  securities  that  are  issued  by  a  public  utilities  company  exist- 
ing under  Massachusetts  laws. 

In  some  rare  instances  pu])lic  utilities  corporations  have  been 
reorganized  and  carried  along  until  the  growth  of  business  has 
saved  the  day,  and,  by  conservative  management,  a  paying  basis 
has  been  reached. 

In  many  cases,  however,  receiverships  have  been  found  neces- 
sary, and  reorganization  under  a  receiver  with  a  public  utilities 
c(>ininissi(jn  to  control  the  issue  of  securities  has  resulted  in  drastic 
reductions  of  watered  stock  and  the  placing  of  securities  on  a  rock 


VALUATION  OF  PUBLIC  UTILITIES   AND   FACTORIES     3 

bottom  basis,  governed  largely  by  the  physical  value  of  the  prop- 
erty owned. ^  Curiously  enough,  the  value  of  franchises  has  been 
given  little  consideration  except  in  such  notable  cases  as  that  of  the 
Consolidated  Gas  Company  of  New  York,  and  the  Chicago  Rail- 
way settlement,  in  which,  by  a  compromise,  a  certain  arbitrary 
amount  was  allowed  for  the  remaining  life  of  the  various  franchises. 

At  the  present  time  the  "indeterminate"  franchise  is  being 
given  more  serious  consideration  than  any  other  form,  and,  as 
it  has  been  in  use  in  the  state  of  Massachusetts  ever  since  public 
utilities  corporations  have  existed  there,  and  with  no  trouble  what- 
soever, and  as  probably  more  street  railways  and  lighting  com- 
panies have  been  incorporated  there  in  proportion  to  the  number 
of  inhabitants  than  in  any  other  state,  it  would  seem  that  there  is 
little  trouble  to  be  expected  with  this  particular  form  of  franchise. 
It  may  be  well  to  explain  that  in  effect  the  indeterminate  franchise 
is  simply  a  permit  to  operate  during  good  behavior,  and  it  will 
be  treated  more  fully  later  on  in  the  chapter  on  franchise. 

In  many  instances  public  utilities  have  been  developed  along 
expensive  lines,  as,  for  instance,  the  modern  street  railway,  which 
first  consisted  of  horse-propelled  vehicles  traveling  on  a  light 
strap  rail  laid  on  wooden  stringers ;  next  a  cable  railway  with  a 
very  expensive  under-the-surface  construction,  and  lastly  the 
electric  railway,  which  has  necessitated  the  changing  of  all  the 
old  types  of  equipment.  Rails  have  been  replaced  time  and  again 
as  the  cars  have  been  increased  in  size  and  weight ;  power  houses 
have  been  built  and  rebuilt  to  meet  the  ever  increasing  demand 
for  power,  and  all  these  development  expenses  have  been  met  by 
adjustment  of  capital  resulting  in  the  issue  of  additional  securities, 
and  in  few  cases  known  to  the  writer  have  any  attempts  been  made 
to  amortize  such  development  expenses. 

Now  when  reorganizations  are  found  to  be  necessary  and  the 
commissions  demand  appraisals  of  the  physical  property  as  a 
basis,  it  naturally  results  in  a  corresponding  reduction  of  capital 
if  all  evidence  of  development  items  has  disappeared. 

It  has  been  a  puzzle,  then,  to  determine  some  equitable  method 
of  reorganization  that  would  be  fair  and  agreeable  to  the  corpora- 
tion and  acceptable  to  the  commissions,  but   this  seems  to  have 

'In  the  case  of  the  Third  Avenue  Railway  v.  Public  Service  Commission  of  N.Y., 
Second  District,  the  courts  decided  (Nov.,  1911)  that  a  public  utility  corporation 
could  reorganize  without  reference  to  the  Public  Service  Commission,  if  it  did  not 
issue  new  securities  in  excess  of  those  already  outstanding. 


4  EXGIXEERIXG  VALUATION 

been  very  cleverly  met  by  a  method  of  applying  a  physical  valua- 
tion of  the  property  of  the  International  Traction  Co.  of  Buffalo 
by  Bion  J.  Arnold. 

This  property  is  one  of  the  large  systems  which  has  lines  in  one 
large  city  and  in  a  number  of  smaller  ones,  and  has  many  miles  of 
suburiian  and  interurban  railway.  It  has  been  built  up  on  a 
foundation  of  a  comparatively  small  horse  railway,  but  it  has  been 
very  largely  extended  since  that  time  and  the  development  ex- 
penses include  only  those  incident  to  the  rebuilt  power  plants, 
replacing  old  cars  with  new  and  larger  ones,  and  such  other  items 
as  have  been  due  to  changes  in  the  art.  In  the  appraisal  no  atten- 
tion has  been  paid  to  the  value  of  any  franchises  nor  to  the  amount 
of  the  capital  stock  or  securities  that  have  been  issued. 

First,  an  appraisal  was  made  giving  the  cost  of  reproducing  new 
all  the  physical  property  as  of  to-day  and  in  its  existing  form. 
No  present  or  depreciated  value  was  computed,  the  plain  cost  to 
reproduce  new  being  considered  sufficient  so  far  as  value  of  exist- 
ing property  was  concerned  for  the  purpose  of  this  reorganization. 
This  cost  to  reproduce  new  the  property  at  this  or  any  given  date 
is  considered  the  basis  of  value  to  which  the  capitalization  should 
eventually  be  brought,  although  to  cover  early  losses,  obsolescence, 
brokerage,  discounts  and  development  expenses,  a  higher  capitaliza- 
tion is  temporarily  allowed,  and  for  this  purpose  it  is  proposed  to 
divide  the  gross  earnings  in  the  future  as  follows : 

a.  Operating  expenses,  including  taxes,  insurance  and  main- 
tenance. 

h.  Depreciation  fund,  sufficient  to  always  maintain  the  proper- 
ties in  first-class  operating  condition. 

c.  Interest  on  all  money  put  into  the  property  as  represented 
by  bonds,  and  on  all  actual  cash  put  into  the  property  from  other 
sources. 

d.  All  .suri)lus  to  ije  devoted  to  amortization  of  the  excess  capi- 
talization represented  by  the  above-mentioned  early  losses,  ol> 
solfsffnce,  brokerage,  discounts,  and  development  expenses,  either 
by  the  purcha-sing  of  the  securities  which  represent  these  items, 
or  by  the  building  of  extensions  to  the  property  from  this  surplus 
and  thus  without  increasing  the  capitalization,  until  the  value  of 
the  securities  issued  becomes  the  same  as  that  of  the  physical 
property  which  is  performing  the  service,  after  which  time  the 
sur|)lus  can  l>e  divided  between  the  public  and  the  company, 
in  some  such  a  manner  as  is  done  in  Chicago,  used  for  the  reduc- 


VALUATION   OF  PUBLIC  UTILITIES   AND   FACTORIES     5 

tion  of  fares  to  the  public,  or  otherwise  as  may  be  agreed  between 
the  regulating  bodies  representing  the  public  and  the  company 
performing  the  service. 

Such  a  method  will  place  the  capitalization  of  the  corporation 
on  a  basis  so  solid  that  a  commission  can  safely  allow  the  issue 
of  securities  for  the  purchase  of  additional  plant,  track,  cars,  and 
anything  else  for  which  money  may  be  needed.  The  method  will 
also  gradually  amortize  out  of  existence  any  capitalization  that 
may  have  been  issued  for  franchises,  good  will,  or  development 
expense.  It  takes  care  of  all  depreciation  so  that  the  value  of  the 
property  is  maintained  intact,  and,  in  fact,  seems  to  cover  in  a 
very  equitable  manner  all  points  heretofore  left  unprovided  for 
in  such  reorganizations. 


CHAPTER   I 

VALUE 

Webster's  Dictionary  gives  the  following  definition  of  value  : 

"Worth  estimated  by  any  standard  of  purchasing  power,  especially 
by  the  market  price,  or  the  amount  of  money  agreed  upon  as  an  equiva- 
lent to  the  utility  and  cost  of  anything." 

A  shorter  definition  by  F.  A.  Walker  is  : 
"Value  is  the  generic  term  which  expresses  power  in  exchange." 

Professor  H.  C.  Adams  says  : 

"One  cannot  go  far  in  the  consideration  of  the  process  of  valuation, 
however,  without  being  forced  to  recognize  that  value  is  a  higlily  complex 
idea,  and  that  the  process  of  valuation  is  in  a  marked  degree  an  ana- 
lytical process,  and,  further,  the  necessity  of  fornmlating  definitions,  and 
of  presenting  the  aggregate  valuation  arrived  at  under  appropriate  heads, 
will  result  in  a  new  point  of  view,  from  which  the  problem  of  the  relation 
of  public  service  industries  to  the  political  organization  may  be  regarded." 

The  above  definitions  cover  the  term  "value"  in  a  general 
sense,  but  the  subject  broadens  and  is  divided  into  various  kinds 
of  values,  viz. : 

Market  value,  which  may  be  defined  as  the  amount  that  may  be 
agreed  upon  as  between  a  willing  buyer  and  a  willing  seller. 

In  a  recent  lawsuit,  the  following  definition  of  market  value  was 
given  to  the  witnesses  by  the  court : 

"Market  value  means  the  fair  \-;ilue  of  the  property,  as  between  one 
who  wants  to  jiurchase  and  one  who  wants  to  sell  any  article ;  not  what 
could  be  obtained  for  it  under  peculiar  circumstances,  when  a  greater 
than  its  fair  price  could  be  obtained ;  not  its  speculative  value ;  not  a 
value  obtained  from  the  necessities  of  another.  Nor,  on  the  other  liand, 
is  it  to  V)e  limited  to  that  priee  which  the  property  would  bring  when 
forced  olT  at  auction,  under  the  liainmcr.  It  is  what  it  would  bring  at 
a  fair  public  sale,  when  one  party  wanted  to  sell  and  the  other  to  buy." 

(1 


VALUE  7 

Taxable  value,  or  the  value  placed  upon  property  of  a  taxable 
nature  by  the  assessor. 

Commercial  value,  which  perhaps  may  be  considered  the  same 
as  market  value,  is  defined  by  the  Century  Dictionary  as  "that 
for  which  a  thing  can  be  sold  or  exchanged  at  a  given  time  or 
place." 

Professor  Adams  defines  it  as  "  the  estimate  placed  upon  the 
worth  of  a  property,  regarded  as  a  business  proposition." 

One  of  the  best  definitions  yet  seen  by  the  writer  is  that  of 
Henry  Earle  Riggs,  in  a  paper  read  before  the  American  Society 
of  Civil  Engineers  in  January,  1911,  entitled  "  The  Valuation  of 
Public  Service  Corporation  Property."     He  says: 

"As  a  definition  of  that  estimate  of  worth  which  an  engineering  com- 
mission should  report  as  the  result  of  a  complete  appraisal,  the  follow- 
ing is  submitted :  The  value  of  a  property  is  its  estimated  worth  at  a 
given  time,  measured  in  money,  taking  into  account  all  the  elements 
which  add  to  its  usefulness  or  desirability  as  a  business  or  profit-earning 
proposition." 

Matheson  says: 

"The  value  of  anything  is  sometimes  defined  as  that  which  it  will 
fetch ;  and  in  the  sale  of  a  factory,  the  price  at  any  particular  time  will, 
if  there  be  freedom  on  both  sides,  depend  not  on  the  original  cost  or  on 
any  arbitrary  standard  of  value  —  although  of  course  the  cost  at  which 
a  similar  factory  could  be  built  and  equipped  is  an  important  consid- 
eration—  but  on  the  competition  either  of  buyers  or  sellers;  in  other 
words,  on  the  supply  or  demand.  The  element  of  freedom  is  wanting 
in  a  compulsory  purchase  there,  the  basis  of  price  is  the  value  to  the 
seller,  who  is  compensated  for  what  he  loses,  and  not  for  what  the  buyer 
gains." 

Earning  Value  is  the  value  placed  upon  or  agreed  upon  for  a 
property,  based  on  the  earning  capacity  of  that  property,  either 
from  the  known  past  earnings  or  from  those  estimated  for  the 
future.     Again  quoting  from  Matheson : 

"The  real  basis  of  value,  however,  which  generally  guides  a  purchaser, 
is  the  estimated  earning  power,  or  the  net  revenue,  past,  present,  and 
prospective,  so  far  as  it  can  be  ascertained.  From  this  point  of  view 
there  is  often  more  scope  for  difference  of  opinion  than  would  at  first 
sight  appear.  The  rate  of  profit  in  the  past  is  a  primary  basis,  but 
this  is  not  conclusive.  A  purchaser  may  see  his  way  to  improved 
methods,  to  an  extended  trade,  to  a  better  utilization  of  the  plant  or 
site,  and  so  to  greater  profits.     On  the  other  hand,  past  profits  may 


8  EXGIXEERIXG   VALUATION 

have  been  due  to  special  knowledge  of  the  proprietors ;  much  may 
really  have  been  owing  to  skilled  management,  wliich,  if  obtainable  at 
all  in  the  futui'e,  may  require  the  pajinent  of  considerable  salaries  tak- 
ing precedence  of  profits,  or  the  pajonent  of  directors'  fees.  Private 
partners  ma}'  not  have  debited  the  concern  with  salaries,  but,  if  they 
are  selling  the  concern  to  a  company,  may  claim  them  when  they  serve 
as  managers  or  directors." 

In  the  case  of  Cotting  v.  Kansas  City  Stockyards  Co.,  and  in 
Monongahela  Navigation  Co.  v.  United  States,  the  court  had  the 
following  to  say  as  regards  basing  the  value  of  a  public  utilities 
property  on  the  earning  capacity: 

"When  a  valuation  is  placed  on  property  which  has  become  affected 
with  a  public  use,  for  the  purpose  of  ascertaining  whether  the  maxi- 
mum rate  of  compensation  fixed  by  law  for  its  use  is  reasonable  or 
otherwise,  it  is  obvious  that  the  income  derived  therefrom  by  the 
owner  before  it  was  subjected  to  legislative  control  caimot  always  be 
accepted  as  a  proper  test  of  value  because  the  compensation  which 
the  owner  charged  for  its  use  may  have  been  excessive  and  unreason- 
able. Again,  wdien  property  has  been  capitalized  by  issuing  stock, 
neither  the  market  value  nor  the  par  value  of  the  stock  can  be  accepted 
in  all  cases  as  a  proper  criterion  of  value,  because  the  stock  may  not 
represent  the  money  actually  invested,  and,  furthermore,  because 
the  property  may  have  been  capitalized  mainly  with  reference  to  its 
income  producing  capacity,  on  the  assumption  that  it  is  ordinary  private 
property,  which  the  owner  may  use  as  he  thinks  proper,  without  being 
subject  to  legislative  control.  On  the  other  hand,  however,  when 
property  is  valued  for  the  purpose  last  stated,  it  is  clear  that  the  owner 
thereof  is  entitled  to  the  benefit  of  anj'^  appreciation  in  value  above 
the  original  cost  and  the  cost  of  improvements,  which  is  due  to  what 
may  be  termed  natural  causes.  If  improvements  made  in  the  vicinity 
of  the  property,  the  growth  of  the  cit}^  or  town  where  it  is  located,  the 
building  of  railroads,  the  development  of  the  surrounding  country, 
and  other  like  causes,  give  property  an  increased  value,  the  owner 
cannot  l)e  deprived  of  such  increase  by  legislative  action  which  prevents 
him  from  realizing  an  income  commensurate  with  the  enhanced  value 
of  his  property."     (S2  Fed.  Rep.  854.) 

"The  value  of  property,  generally  speaking,  is  determined  liy  its 
productiveness,  —  the  profits  which  its  use  brings  to  the  owner.  Various 
elements  enter  into  this  matter  of  value.  .  .  .  Neighborhood  to  the  cen- 
ters of  business  and  population  largely  affect  values,  for  that  property 
which  i.s  near  the  center  of  a  large  city  may  command  high  rent,  wliile 
property  of   the  same  character,  remote  therefrom,  is  wanted  by  but 


VALUE  9 

few,  and  commands  but  a  small  rental.  Demand  for  the  use  is  another 
factor.  The  commerce  on  the  Monongahcla  River,  as  appears  from 
the  testimony  offered,  is  great;  the  demand  for  the  use  of  this  lock 
and  dam  constant.  A  precisely  similar  property,  in  a  stream  where 
commerce  is  light,  would  naturally  be  of  less  value,  for  the  demand  for 
the  use  would  be  less.  The  value,  therefore,  is  not  determined  by  the 
mere  cost  of  construction,  but  more  by  what  the  completed  structure 
brings  in  the  way  of  earnings  to  its  owner.  For  each  separate  use 
of  one's  property  by  others  the  owner  is  entitled  to  a  reasonable  com- 
pensation, and  the  number  and  amount  of  such  uses  determines  the 
productiveness  and  the  earnings  of  the  property,  and,  therefore,  largely 
its  value.  So  that,  if  this  property,  belonging  to  the  Monongahcla 
Company  is  rightfully  where  it  is,  the  company  may  justly  demand 
from  every  one  making  use  of  it  a  compensation;  and  to  take  that 
property  from  it  deprives  it  of  the  aggregate  amount  of  such  com- 
pensation, which  otherwise  it  would  continue  to  receive.  What 
amount  of  compensation  for  each  separate  use  of  any  particular 
property  may  be  charged  is  sometimes  fixed  by  the  statute  which 
gives  authority  for  the  creation  of  the  property ;  sometimes  de- 
termined by  what  it  is  reasonably  worth ;  and  sometimes,  if  it  is 
purely  private  property,  devoted  only  to  private  uses,  the  matter 
rests  arbitrarily  with  the  will  of  the  owner.  In  this  case,  it  being 
property  devoted  to  a  public  use,  the  amount  of  compensation  was 
subject  to  the  determination  of  the  state  of  Pennsylvania,  the  state 
which  authorized  the  creation  of  the  property.  The  prices  which 
may  be  exacted  under  this  legislative  grant  of  authority  are  the  tolls, 
and  these  tolls,  in  the  nature  of  the  case,  must  enter  into  and  largely 
determine  the  matter  of  value."  (Monongahcla  Navigation  Co.  v. 
United  States,  13  Sup.  C.  627.) 

Division  of  Values.  —  Value  in  general  may  be  considered  under 
the  following  heads,  viz. : 

Physical  Value.        Original  cost. 

Reproduction  value  now. 

Overhead  charges. 

Scrap  or  salvage  value. 

V^earing  value. 

Service  value. 

Present  or  depreciated  value. 
Intangible  Value.     Development  expenses. 

Franchise  value. 

Going  concern  value. 

Good  will  value. 


10  ENGINEERING  VALUATION 

Physical  Value  is  that  value  which  includes  the  costs  of  con- 
structing a  property,  together  with  the  value  of  all  material,  ap- 
paratus and  the  labor  of  installation.  Physical  value  should 
include  also  all  nonphysical  charges  that  are  closely  connected 
with  the  construction  and  installation  of  the  property,  i.e.  en- 
gineers and  architects'  charges,  including  all  designing  and  testing : 
administration  expenses,  which  include  superintendents,  inspectors, 
clerk  hire,  legal  expense,  rent,  storeroom  expenses,  etc.,  taxes  and 
insurance  during  construction. 

In  appraising  the  physical  value  of  a  property  allowance  must 
also  be  made  to  provide  for  contingencies,  incidentals,  incomplete 
inventories,  etc. 

Worth  may  be  defined  as  the  physical  value  of  a  property  or 
article  less  the  depreciation,  and,  while  not  necessarily  the  value 
of  the  property,  it  is  clear  that  the  physical  worth  must  be  deter- 
mined in  order  to  learn  the  value.  The  investment  upon  which 
a  return  is  to  be  earned  is  represented  by  the  physical  value  of  the 
property  for  which  the  money  invested  has  been  expended. 

Property  owned  by  private  persons  may  be  used  as  the  owner 
may  see  fit.  So  also  may  property  be  handled  that  may  belong 
to  a  company  or  a  limited  liability  partnership  that  is  not  engaged 
in  serving  the  public  needs.  But  corporations  which  are  organized 
for  supplying  the  public  with  any  of  its  public  utilities,  such  as 
gas,  domestic  water  supply,  transportation,  telephones,  and  electric 
lighting,  arc  now,  by  decisions  of  the  Supreme  Court,  subject  to 
regulation  by  the  properly  constituted  authorities  as  to  rates  to 
be  charged  for  service,  methods  to  be  used,  character  of  service 
given,  compulsory  supply,  and  rate  of  dividend.  They  are  no 
longer  allowed  to  overcapitalize  as  in  the  past,  nor  are  they 
permitted  to  pay  excessive  salaries  or  other  compensation  to 
officials  and  directors,  and  they  are  required,  on  proper  notice, 
to  furnish  complete,  detailed  appraisals  of  their  entire  property 
so  that  rates  may  be  determined  in  an  equitable  manner. 

A  corporation  owes  its  existence  to  the  state  and  therefore  owes 
a  duty  to  that  state  from  which  it  obtained  its  charter.  It  should 
furnish  all  reports  of  its  operation  freely  and  willingly  under 
proper  safeguards  by  the  state ;  but  there  are  many  corporations 
given  life  and  existence  which  are  quite  averse  to  furnishing  such 
reports  to  any  one  but  the  bureau  of  corporations  for  tax  purposes, 
and  in  many  cases  these  reports  are  apparently  so  juggled  as  to 
render  them  of  little  use  in  determining  the  result  of  operations. 


VALUE  11 

This  condition  obtains  whether  the  corporation  is  very  profitable 
or  is  making  no  net  income.  The  only  remedy  suggested  for  rehev- 
ing  the  profitable  corporation  is  that  it  should  withdraw  from 
the  protection  of  the  state  and  become  a  simple  partnership.  For 
some  unknown  reason  this  is  seldom  done. 

In  appraising  the  property  of  a  public  utilities  corporation 
care  should  always  be  taken  that  the  figures  of  valuation  are  based 
upon  a  simple  engineering  calculation,  original  cost,  or  cost  of 
the  property  reproduced  new.  There  is  always  danger  that  an 
appraisement  may  be  biased  in  favor  of  the  parties  for  whom  it  is 
made.  Appraisers  are  sometimes  requested  to  favor  the  parties 
by  whom  they  are  employed,  as,  when  appraising  for  a  corporation, 
if  the  valuation  is  for  rate-making  purposes,  to  make  the  appraise- 
ment high,  or  if  for  taxation,  to  produce  a  lower  figure,  and  again, 
if  for  sale,  the  desire  will  be  wholly  to  make  the  value  as  high  as 
possible.  There  can  be  no  doubt,  however,  that  there  is  but  one 
legitimate  value,  which  is  such  as  may  be  determined  by  competent 
engineers  at  the  given  date  and  under  the  conditions  existing. 
This  matter  has  been  very  well  stated  by  Henry  Earle  Riggs  in 
a  paper  on  "  The  Valuation  of  Public  Utilities  Companies  Property," 
read  before  the  American  Society  of  Civil  Engineers,  November, 
1910  (page  1499,  Trans.  Am.  So.  C.  E.) : 

"It  is  further  contended  that,  in  making  the  physical  appraisal,  the 
purpose  of  the  appraisal  should  not  be  permitted  to  modify  the  figures. 
The  resultant  figure  should  be  the  same,  whether  it  is  to  be  used  as  a 
basis  for  assessment,  rate  making,  or  limitation  of  capitalization.  It 
should  be  an  engineering  estimate  of  the  amount  of  bona  fide  capital 
still  remaining  in  the  property,  or  of  the  complete  cost  of  reproduction 
under  existing  conditions,  less  depreciation.  This  figure  is  definite,  within 
reasonable  limits,  and  it  cannot  be  conceded  that  it  is  permissible  to  vary 
it,  submitting  one  result  as  a  physical  value  for  taxation,  and  another 
and  different  result  as  a  present  physical  valuation  for  rate  making." 

Present,  or  depreciated,  value  must  be  determined  by  making 
a  proper  deduction  from  the  cost  to  reproduce  a  plant  new,  or  from 
the  cost  of  the  plant  upon  whatever  basis  it  may  be  appraised. 

There  has  been  some  controversy  over  the  question  as  to  whether 
properties  should  be  valued  on  the  basis  of  reproduction  new  in 
the  same  form  as  at  the  date  of  the  appraisal,  or  should  be  rated 
at  the  value  of  a  new  plant  of  the  same  capacity,  but  up-to-date 
in  every  respect.     Many  take  the  ground  that  the  valuation  of 


12  EXGIXEERIXG  VALUATION 

an  existing  plant  need  not  be  based  upon  the  reproduction  as  found, 
but  may  be  based  upon  the  cost  of  a  new  plant  substituted  for  the 
old,  for  doing  the  same  work,  but  in  the  most  modern  manner. 
It  has  been  decided  by  the  courts,  however,  that  in  making  an 
appraisal  of  public  utilities  properties  the  valuation  must  be  taken 
as  of  the  property  in  the  same  form  which  it  exists  at  the  time 
of  the  appraisal.  See  opinion  of  Judge  Savage  in  Kennebec 
Water  District  v.  City  of  Waterville  (54  Atl.  Rep.  13)  following : 

"The  court,  in  San  Diego  Water  Co.  v.  San  Diego,  118  Cal.  556,  50 
Pac.  633,  62  Am.  St.  Rep.  261,  38  L.  R.  A.  460,  holds  that  the  method 
of  fixing  present  value  by  ascertaining  cost  of  replacement  is  not  appli- 
cable to  property  of  this  character,  because,  chiefly,  the  construction 
and  development  of  waterworks  is  a  matter  of  growth.  At  the  outset 
the  company  owning  them  is  a  pioneer.  It  must  keep  pace  with  or 
anticipate  municipal  growth.  The  works  must  be  constructed,  and 
usually  no. reward  can  be  realized  by  the  constructors  until  some  time 
has  elapsed.  In  the  meantime,  as  the  city  grows,  the  facilities  of 
building  such  works  are  increased,  and  the  cost  of  construction  thereby 
diminished.  But  we  think  that,  at  the  most,  these  considerations 
suggest  only  that  other  elements  are  also  taken  into  account  in  fixing 
present  value.  So  far  as  they  relate  to  the  original  hazard,  we  have 
discussed  them  in  an  earlier  part  of  this  opinion.  We  think  the  in- 
quiry along  the  line  of  reproduction  should,  however,  be  limited  to  the 
replacing  of  the  present  system  by  one  substantially  like  it.  To  enter 
upon  a  comparison  of  the  merits  of  different  systems  —  to  compare 
this  one  with  more  modern  systems  —  would  be  to  open  a  wide  door 
to  speculative  inquiry,  and  lead  to  discussions  not  germane  to  the 
subject.  It  is  this  system  that  is  to  be  appraised,  in  its  present  con- 
dition and  with  its  present  efficiencJ^" 

W.  H.  Williams,  3d  Vice  President  of  the  Delaware  and  Hudson 
Canal  Co.,  in  the  Railroad  Age  Gazette  of  April  9,  1909,  has  the 
following  to  say  upon  this  part  of  the  subject: 

"Ordinarily  we  should  expect  to  see  the  valuation  for  taxation  much 
less  than  the  valuation  used  as  the  basis  for  making  rates,  or  for  cap- 
italization. Generally  speaking,  the  valuation  of  property  for  tax- 
ation should  be  its  market  value,  regardless  of  the  purpose  for  which  it 
is  used.  Capitalization  should  represent  the  cost  of  the  property  to 
the  present  holders  thereof.  The  valuation  for  rates  is  dependent, 
among  other  things,  both  upon  the  first  cost  and  the  present  value 
an  a  'going  concern.'  " 

Original  Cost. —  Tn  making  valuations  little  attention  has  been 
paid  in  the  p:ist  to  the  original  cost  of  plants,  for  the  reason  that 


VALUE  13 

it  has  been  very  difficult  of  determination.  Many  corporations 
for  which  valuations  are  made  to-day  are  the  result  of  combina- 
tions, and  these  combinations  have  been  made  almost  invariably 
upon  the  earning  value  rather  than  upon  the  physical  worth.  It 
is  a  natural  consequence  that  little  attention  has  been  paid  to 
the  construction  or  first  cost  of  these  plants,  and  therefore  records 
of  cost  are  seldom  available  to  new  buyers. 

H.  P.  Gillette  says,  in  his  report  on  the  valuation  of  the  rail- 
roads in  the  state  of  Washington,  that  he  considered  the  original 
cost  of  so  much  consequence  that  he  insisted  on  having  the 
records  produced,  and  after  he  had  secured  much  of  the  original 
data  by  other  means,  and  after  a  delay  of  months,  the  railroads 
reluctantly  —  at  first — gave  up  the  records.  Mr.  Gillette  feels 
that  persistence  in  such  a  demand  will  nearly  always  disclose 
the  original  costs. 

Again,  where  such  records  have  been  kept,  there  is  no  assurance 
that  they  are  correct  from  the  standpoint  of  cost,  as  in  many  cases 
the  figures  have  been  raised  in  order  to  cover  the  issue  of  the  bonds 
and  stock.  This  has  been  done  in  many  cases  in  New  York  State, 
especially  with  street  railways,  and  the  books  generally  read  "  cost 
of  railway  by  contract."  Such  contracts  have  been  made  at  a 
price  equal  to  the  total  issue  of  securities,  where  it  is  a  well-known 
fact  that  the  bonds  have  been  issued  in  payment  for  the  physical 
property,  and  usually  issued  at  a  discount,  and  the  stock  has  been 
issued  for  franchises  or  given  as  a  bonus.  For  such  reasons  it  has 
been  particularly  difficult  to  determine  the  first  cost. 

In  certain  waterworks  cases  it  has  been  possible  to  determine 
the  first  cost,  and  particular  effort  has  been  made  to  learn  this, 
for  the  reason  that  in  some  court  cases  the  reasonable  return  to  be 
allowed  to  the  owner  of  such  works  has  been  calculated  upon  the 
original  cost. 

Items  are  frequently  included  in  original  cost  that  have  been 
discarded,  superseded,  or  abandoned  for  obsolescence  or  other  good 
and  sufficient  reasons.  Ten  years  back  the  capitalization  of  these 
items  was  not  often  disturbed,  the  value  of  the  new  article  dis- 
placing the  old  being  added  directly  to  the  capital  in  many  in- 
stances. Since  that  time,  however,  much  greater  care  has  been 
exercised,  and  now  only  the  excess  value  is  added,  or  the  value  of 
the  old  material  has  to  be  depreciated  gradually  in  order  to  get 
it  off  the  books.  Most  accountants  try  to  have  this  removed  at 
once,  but  in  the  case  of  street  railways  where  a  whole  cable  system, 


14  ENGINEERING  VALUATION 

for  instance,  has  been  abandoned  it  would  be  very  harmful  to  the 
owner  and  impracticable  to  write  the  total  value  off  the  books  at 
once,  and  engineers  now  feel  that  such  items  should  be  depreciated 
at  the  regular  rates  or  perhaps  at  a  little  higher  rate  than  usual 
until  entirely  canceled. 

Reproduction  Cost  New.  —  The  reproduction  cost  new  is  the 
basis  upon  which  sul:)stantially  all  modern  appraisements  are  made. 
It  is  the  most  fair,  from  the  fact  that  it  is  based  upon  existing  con- 
ditions, and  it  is  not  especially  difficult  to  determine  market  prices 
for  materials  and  labor  at  the  time.  Reproduction  value  should 
include,  besides  the  value  of  the  actual  physical  property,  its 
value  as  a  going  concern,  the  value  of  good  will,  the  value  of  its 
franchise,  if  operated  under  such  a  privilege,  and  its  earning  value. 

"  18.  The  appraisers  may  properly  consider  what  the  existing  sys- 
tem can  be  reproduced  for.  But  the  cost  of  reproduction  will  not  be 
conclusive.  It  will  be  evidence  having  some  tendency  to  prove  pres- 
ent value.  The  inquiry  along  the  line  of  reproduction  should  be  lim- 
ited to  the  replacing  of  the  present  system  by  one  substantially  like 
it."  (Kennebec  Water  District  v.  City  of  Waterville,  et  al.,  Sup.  Jud. 
Ct.  of  Maine,  Dec.  27,  1902.) 

The  prices  to  be  used  in  connection  with  the  reproduction  cost 
must  depend  somewhat  upon  the  judgment  of  the  appraiser,  and, 
if  convenient,  to  arrive  at  an  agreement  with  the  opposite  party, 
when  two  or  more  are  interested,  such  agreement  will  go  far  in 
settlement.  In  some  of  the  large  cases  with  which  the  writer  has 
been  associated,  prices  for  nearly  all  common  materials  were  taken 
at  the  date  of  the  appraisement,  but  when  large  quantities  of  some 
special  materials  have  been  found,  as  for  instance,  copper,  iron, 
steel  rails,  cast  iron  pipe,  steel  or  wooden  poles,  cross-arms,  etc., 
prices  have  been  averaged  for  four  or  five  years  previous  to  the 
date  of  the  appraisal. 

In  Willcox  V.  Consolidated  Gas  Co.  (29  Sup.  Ct.  200)  the  court 
stated  that  the  price  as  of  the  date  of  the  appraisal  was  the  correct 
one  to  use. 

Two  opinions  delivered  by  Judge  Savage  in  advance  of  decisions 
regarding  the  appraisal  of  three  water  companies  in  the  state  of 
Maine,  take  the  ground  that  the  price  must  be  taken  as  the  average 
over  a  period  of  time  necessary  to  complete  the  works  previous  to 
the  d:ite  of  taking  over.  That  is,  if  it  was  estimated  by  the  ap- 
prai.scr-^  tliat  it  would  take  three  years  to  build  the  structures, 


VALUE  15 

then  the  average  price  for  that  three  years  ending  upon  the  date 
of  taking  over  the  property  would  be  the  price  at  whicli  the  valua- 
tion should  be  made.  On  the  contrary,  in  the  case  of  the  National 
Water  Works  Company  v.  Kansas  City,  62  FecUn-al  Report  853, 
the  court  decided  that  the  price  obtained  at  the  date  of  delivering 
the  works  would  be  used  in  the  appraisal.  Following  is  the  lan- 
guage of  Judge  Savage  in  one  of  the  MaiuQ  opinions  : 

"In  determining,  not  cost,  but  present  value,  present  prices,  of  course, 
are  the  standard,  rather  than  former  prices.  It  is  suggested  that  in 
fixing  the  value  on  January  1,  1904,  allowance  must  be  made  for  the 
fact  that  a  plant  ready  to  be  delivered  on  a  given  date  must  have  been 
commenced  a  considerable  time  before,  certainly.  When  we  say 
'  present  prices '  we  mean  prices  within  a  period  necessary  for  construc- 
tion. And  a  fair  rate  —  usually  the  prevailing  rate  —  of  interest  upon 
the  money  invested  in  the  plant  during  construction,  and  before  com- 
pletion, is  as  much  a  part  of  the  cost  of  construction,  as  is  the  money 
itself  which  is  expended  for  materials  and  labor."     (59  Atl.  Rei^.  542.) 

"And  we  concur  with  the  court  below  in  holding  that  the  value  of 
the  property  is  to  be  determined  as  of  the  time  when  the  inquiry  is 
made  regarding  the  rates.  If  the  property  which  legally  enters  into 
the  consideration  of  the  question  of  rates  has  increased  in  value  since 
it  was  acquired,  the  company  is  entitled  to  the  benefit  of  such  increase. 
That  is,  at  any  rate,  the  general  rule.  We  do  not  say  there  may  not 
possibly  be  an  exception  to  it  where  the  property  may  have  increased  so 
enormously  as  to  render  a  rate  permitting  a  reasonable  return  upon  such 
increased  value  unjust  to  the  public."  (Willcox  v.  Consolidated  Gas 
Co.  29  Sup.  Ct.  200.) 

"We  hold,  however,  that  the  basis  of  all  calculations  as  to  tho  reason- 
ableness of  rates  to  be  charged  by  a  corporation  maintaining  a  high- 
way under  legislative  sanction  must  be  the  fair  value  of  the  property 
being  used  by  it  for  the  convenience  of  the  public.  And,  in  order  to 
ascertain  that  value,  the  original  cost  of  construction,  the  amount 
expended  in  permanent  improvements,  the  amount  and  market  value 
of  its  bonds  and  stock,  the  present  as  compared  with  the  original  cost  of 
construction,  the  probable  earning  capacity  of  the  property  under  particu- 
lar rates  prescribed  by  statute,  and  the  sum  required  to  meet  operating 
expenses,  are  all  matters  for  consideration,  and  are  to  be  given  such  weight 
as  may  be  just  and  right  in  each  case.  We  do  not  say  that  there  may 
not  be  other  matters  to  be  regarded  in  estimating  the  value  of  the 
property.  What  the  company  is  entitled  to  ask  is  a  fair  return  upon 
the  value  of  that  which  it  employs  for  the  public  convenience.  On  the 
other  hand,  what  the  public  is  entitled  to  demand  is  that  no  more  be 


16  ENGINEERING  VALUATION 

exacted  from  it  for  the  use  of  a  public  highway  than  the  ser\aces  rendered 
by  it  are  reasonably  worth."     (Smythc  v.  Ames.  18  Sup.  Ct.  434.) 
John  W.  Alvord,  in  a  paper  read  before  the  American  Water 
Works  Association  in  June,  1909,  very  clearly  states  the  conditions 
necessary  to  take  into  account  in  valuing  a  going  plant  for  repro- 
duction cost,  as  follows : 

1.  "In  estimating  the  cost  of  reproducing  a  plant,  it  is  obviously 
important  to  consider  the  reproduction  as  taking  place  in  a  way  that  is 
humanly  possible.  Now,  it  is  not  humanly  possible  to  construct  a 
plant  in  the  past,  or  in  one  day,  or  by  the  substitution  of  hindsight  for 
foresight;  therefore,  if  we  are  to  avoid  flights  of  constructive  fancy, 
we  are  compelled  to  consider  the  reproduction  as  taking  place  in  the 
near  future  in  reasonable  and  workable  periods  of  time,  and  without 
special  foreknowledge  other  than  that  gained  from  experience  with 
similar  construction  and  familiarity  with  costs  in  the  near  past.  To  do 
other  than  this  will  not  be  'reproducing.' 

2.  "A  conceptual  starting  plant  which  is  in  process  of  being  estimated 
mu.st  be  made  to  pass  through  all  the  preliminarj'-  phases  of  mental 
origination  as  well  as  physical  construction ;  it  must  consider  the  time 
and  cost  necessary  to  devise,  conceive,  design,  negotiate,  administer 
and  direct,  as  well  as  the  labor  cost  of  digging  and  building,  and  the 
duplication  which  we  try  to  imagine  involves  the  recreation  of  many 
subordinate  structures,  appliances,  and  much  machinery  which  will 
have  been  removed  or  will  have  ceased  to  exist,  but  which  were  necessary 
in  their  time  and  place  in  order  to  bring  about  that  finished  condition 
which  finally  appears. 

3.  "The  conceptual  starting  plant  must  of  course  finally  precisely 
accord  in  form,  dimension  and  extent  with  the  existing  or  going  plant 
under  consideration ;  in  other  words,  the  estimator  has  before  him 
full-sized  and  lifelike  plans  and  specifications  furnished  by  the  existing 
or  going  plant.  This  very  completeness  of  data  often  tempts  even 
experienced  estimators  into  a  neglect  of  the  intermediate  steps  by 
which  such  plants  are  originally  evolved. 

4.  "  The  conceptual  or  starting  plant  should,  as  a  matter  of  fairness, 
deal  with  all  difficulties  known  to  be  originally  encountered  in  con- 
structing the  exi-sting  or  going  plant,  notwithstanding  such  difficulties 
might  now  be  easily  modified  or  eliminated  by  a  forewarned  intelli- 
gence. 

5.  "  The  value  of  the  conceptual  or  starting  plant  should  be  com- 
puted upon  such  prices  of  labor  and  material  as  it  would  seem  safe 
for  a  prudent  man  to  commit  him.self  to  and  for  such  reasonable  period 
in  the  near  future,  as  experience  shows  will  properly  be  required  for 
construction.  Such  period  in  any  new  construction  cannot  of  necessity 
be  contemplated  as  completed  in  the  near  past  from  the  date  of  the 


VALUE  17 

estimate,  for  to  consider  such  prices  as  of  a  period  that  has  already 
passed  would  be  taking  advantage  of  knowledge  not  humanly  available 
to  the  ordinary  constructor.  Prices  in  the  near  future,  however,  should 
of  course  be  predicated  (with  good  judgment)  upon  those  of  the  near 
past,  just  as  in  any  practical  case  of  new  construction." 


7.  "The  method  of  valuing  at  some  present  date  b,y  the  reproduction 
theory  will  necessarily  include  all  the  appreciations  in  value  which 
logically  and  properly  ought  to  be  credited  to  the  existing  or  going 
plant,  by  reason  of  its  age.  Some  of  these  appreciations  are  readily 
admitted,  as,  for  instance,  'Increased  Value  of  Land'  due  to  a  city's 
growth,  but  other  items  quite  as  logical  are  sometimes  unexpected,  as, 
for  instance,  the  increased  cost  that  will  be  necessitated  in  relaying  pipe 
under  pavements. 

8.  "If  appreciations  are  thus  made  necessary  in  the  process  of 
duplication,  it  is  also  true  that  on  the  completion  of  the  conceptual 
starting  plant  it  must  be  reduced  in  value  by  the  measure  in  which 
the  existing  or  going  plant  has  depreciated  through  age,  wear  and  tear, 
by  reason  of  new  inventions,  changes  in  demand,  growth  of  ideas  and 
other  fluctuating  conditions.  The  time  element  here  is  of  vital 
importance." 

Overhead  Charges.  —  These  charges  are  certain  percentages 
added  to  the  cost  to  reproduce  ne\v,  in  order  to  complete  that 
valuation.  They  are  made  up  of  a  number  of  items,  some  of 
which  are  nearly  always  in  dispute,  but  are  finally  and  in  general 
agreed  upon  by  engineers  and  appraisers. 

It  must  be  understood  that  the  percentage  for  general  con- 
tractors' profit,  being  at  the  rate  of  8  to  15  per  cent,  should  be  added 
to  the  cost  as  developed  from  subcontractors'  prices,  and  is  not 
a  legitimate  overhead  charge.  The  sum  of  the  cost  to  reproduce 
new,  plus  the  general  contractor's  profit,  is  the  true  cost  to  re- 
produce. It  is  a  general  condition  to-day  that  most  large  or  heavy 
construction  is  in  the  hands  of  a  general  contractor,  who,  for  a 
certain  percentage,  looks  after  all  subcontractors  and  all  of  the 
construction  in  general.  This,  of  course,  does  not  apply  to  items 
of  equipment,  such  as  rolling  stock  for  a  railroad,  or  the  connections 
for  a  gas  or  electric  light  company,  etc.  Where  a  property  is  being 
extended  and  the  construction  is  in  charge  of  the  regular  engineers 
employed  by  the  company,  no  charge  is  necessary  for  the  item 
of  general  contractor's  profit,  the  charge  for  engineering  and 
supervision  being  treated  as  an  overhead  charge. 


18  ENGINEERING  VALUATION 

Organization  Expense.  All  items  which  go  to  make  up  the  cost 
of  organization  and  administration  for  construction,  including 
also  general  office  expense,  all  cost  or  allowance  for  brokerage 
connected  with  the  disposal  of  the  securities,  all  discounts  on 
securities,  all  emergency  items,  an  item  for  contingencies,  and  all 
other  items  not  clearly  chargeable  to  construction  or  to  any  other 
specific  account,  come  under  this  head. 

Legal  Expenses.  This  item  covers  the  cost  of  the  legal  work 
necessary  in  obtaining  such  rights  as  may  be  needed  for  con- 
struction, and  other  legal  expenses  incident  to  and  chargeable  in 
the  same  account.  It  includes,  though,  none  of  the  preliminary 
expense  described  under  the  head  of  development  charges. 

Engineering.  This  item  covers  all  the  cost  of  architecture  and 
engineering,  including  all  designs  and  drafting,  plans  and  super- 
vision of  construction,  and  all  of  the  items  properly  chargeable 
to  construction  engineering. 

Interest.  This  item  should  include  interest  on  the  money 
paid  out  during  the  period  of  construction.  The  length  of  time 
for  which  it  is  to  be  computed  will  var}^,  of  course,  with  the  time 
consumed  in  the  construction  of  the  work,  but  ordinarily  the 
interest  will  be  charged  at  the  full  annual  rate  for  one  half  of  the 
time  during  which  construction  is  going  on. 

Taxes  and  Insurance.  Ordinarily  this  item  includes  the  taxes 
which  may  be  charged  by  the  legal  authorities  against  the  property 
previous  to  its  commencing  operation,  and  insurance  upon  the  con- 
struction, computed  in  such  manner  as  may  be  determined  by  the 
local  insurance  authorities.  This  should  include  not  only  fire  in- 
surance, but  casualty  insurance,  covering  both  employers'  and 
public   liability. 

Brokerage  and  Discount.  A  charge  must  be  made  for  brokerage, 
and  for  discount  on  bonds  sold.  These  items  are  now  much  in  ques- 
tion by  those  handling  appraisals,  the  promoters  claiming  that  they 
are  proper  capital  charges,  but  the  regulating  bodies  almost  always 
reject  them.  However,  there  can  be  no  doubt  of  the  necessity  of 
charging  them  in  some  account,  and  it  is  hardly  necessary  to  add 
that  they  should  also  be  amortized  for  either  a  short  or  a  long  life. 
It  is  probably  the  fairest  to  give  thorn  both,  or  at  least  discount, 
the  same  length  of  life  as  that  of  the  bonds.  Where  both  items  are 
relatively  small  there  can  be  no  harm  in  charging  them  to  interest 
account  at  once.  ;Most  of  the  items  mentioned  and  discussed 
above  can  be  given  a  true  and  known  value;  that  is,  a  fairly  well 


VALUE  19 

developed  value,  but  these  added  together  and  to  the  inventory 
value  are  seldom  enough  to  account  for  the  entire  cost  to  repro- 
duce. In  Germany,  I  am  told,  they  are  accustomed  to  add  a  per- 
centage said  to  represent  the  average  human  error  of  estimating, 
viz.,  8  per  cent.  The  writer  is  thoroughly  of  the  opinion  that  some 
such  percentage  should  be  added  to  every  inventory  after  all  the 
known  perclntages  have  been  added  to  make  up  for  any  under- 
estimating that  is  almost  sure  to  exist. 

In  Shepherd  v.  Northern  Pacific  Railway  Co.  (184  Fed.  Rep. 
764)  the  findings  of  Judge  Otis,  Special  Master  in  Chancery,  were 
confirmed,  and  regarding  the  admission  of  bond  discount  in  de- 
termining cost  he  says : 

"It  cannot  be  said,  however,  that  it  is  money  which  has  actually 
gone  into  the  road,  but  rather  an  expense  wliich  the  company  incurs 
for  the  purpose  of  procuring  such  money.  If  rate  making  is  to  be 
based  upon  actual  cost,  it  would  seem  that  such  cost  must  be  measured 
by  the  money  necessarily  expended  in  producing  the  construction 
without  regard  to  whether  those  undertaking  the  enterprise  have  the 
same  or  must  borrow  for  the  purpose  —  a  matter  in  which  the  public 
has  no  concern.  If  allowed  interest  during  construction  on  the  money 
invested,  more  should  not  be  asked ;  otherwise  the  rate  would  be 
directly  affected  by  the  good  credit  or  otherwise  of  those  undertaking 
the  work." 

The  systems  of  accounts  of  the  Interstate  Commerce  Commission 
and  the  Public  Service  Commissions  of  New  York  both  state  that 
the  discount  on  bonds  must  no  longer  be  included  in  construc- 
tion cost  but  must  be  charged  to  a  separate  account  which 
must  be  amortized  during  a  period  not  longer  than  the  life  of  the 
bonds. 

W.  H.  Williams,  3d  Vice  President  of  the  D.  &  H.  Canal  Co., 
in  the  Railroad  Age  Gazette  of  April  2,  1909,  in  a  long  criticism 
of  the  Michigan  appraisal,  among  other  things  says: 

"(1)  No  allowance  is  made  for  discount  on  securities  sold. 

"Discount  is  a  partial  capitalization  of  the  coimnercial  risk  had  in 
making  the  investment,  and  it  increases  or  decreases  in  proportion  to  the 
probability  of  the  earning  power  of  money  under  existing  conditions. 
Not  only  is  this  practice  justified  by  long-established  commercial 
usage,  but  also  by  judicial  determination." 

Again,  taking  the  opposite  view,  another  author  in  the  same 
publication  says ; 


20  EXGIXEERIXG   VALUATION 

"There  is  considerable  diversity  of  opinion  as  regards  the  proper 
treatment  of  discount  on  securities  sold.  There  is  a  distinction  between 
bonds  representing  corporate  indebtedness  and  having  a  definite 
limitation  as  to  the  time  of  their  redemption,  and  share  capital,  rep- 
resenting ownership  and  which  as  a  rule  is  irredeemable.  In  relation 
to  the  former  there  can  be  but  one  tenable  view.  If  a  company  can 
market  its  50-year  4  per  cent  bonds  at  90  per  cent  of  par,^it  means  that 
the  company's  credit  is  on  a  4§  per  cent  basis ;  that  it  could  market 
a  like  security  pajang  4^  per  cent  at  par.  If  it  elects  to  issue  at  the 
lower  rate,  it  is  mereh''  sacrificing  principal  for  the  sale  of  a  reduction  in 
the  annual  interest  charge ;  in  other  words,  it  is  prepaying  interest 
which  would  accrue  during  the  life  of  the  issue.  If  §10,000,000  par 
value  were  issued  at  90  per  cent,  the  discount  would  amount  to  SI, 000,- 
000,  and  the  saving  in  interest  to  $50,000  per  year,  or  $2,500,000  in 
50  years.  Obviously  the  company  cannot  claim  the  privilege  of  capital- 
izing the  discount,  while  thereby'  availing  itself  of  the  reduction  in 
interest.  If  such  a  course  were  legitimate  in  the  case  of  a  5  or  10  per 
cent  discount,  it  would  be  equally  so  if  the  discount  were  50  to  75 
per  cent,  when  the  ab.surdity  of  the  proposition  would  be  perfectly 
apparent.  The  somewhat  general  practice  of  i)rorating  the  discount 
as  a  charge  against  revenues  over  the  term  of  the  obligation's  existence 
is  sound ;  but  this  should  be  done,  not  in  equal  installments,  but  on 
the  basis  of  the  appreciated  value  of  the  bond  as  it  approaches  par 
at  maturity.  There  is  no  apparent  objection  to  charging  discount  of 
this  nature  in  a  lump  sum  against  an  accumulated  surplus.  The  cajii- 
talization  of  discount  on  stocks,  involving  as  it  does  the  introduction  of 
fictitious  values  in  capital  assets,  is  wholly  indefensible." 

Some  appraisers  attempt  to  divide  this  percentage  into  parts 
representing  tlic  proportion  chargeable  to  the  different  items. 
This  is  practically  impossible  to  accomplish,  for  in  its  total  value 
it  is  very  much  of  an  estimate  or  a  guess,  and  it  is  not  good  policy 
to  guess  at  a  number  of  small  items  when  their  total  would  be 
much  in  doul)t.  It  is  a  question  in  the  writer's  mind  if  engineers 
are  not  carrying  overhead  charges  to  extremes,  for  in  many  cases 
of  actual  charges  to  properties  constructed,  when  strict  account 
has  been  kept,  the  total  of  items  that  may  have  been  considered 
chargeable  to  this  account  is  very  much  less  than  the  percentage 
frefjuently  used.  A  study  of  the  cost  of  street  railways  as  shown 
in  the  Reports  of  the  Massachusetts  Railroad  Commission  will 
aid  very  much  in  determining  the  true  percentage  to  charge. 
These  items  are  all  examined  by  the  Commissioners  before  being 
allowed  as  overhead  charges,  and  in  the  great  majority  of  cases  are 
charged  against  the  roadway  division  of  accounts,  no  charges  of 


VALUE 


21 


any  similar  nature  appearing  against  any  other  division.  The 
sum  of  all  the  items  that  could  l)e  counted  as  overhead  charges  in 
the  twenty-five  million  dollars  spent  for  the  equipment  of  the  New 
York  subway  amounted  to  less  than  six  per  cent.  This  included 
interest  during  construction,  insurance,  engineering,  taxes  and  all 
contingencies.  It  is  time  for  engineers  to  bring  forward  actual 
figures  for  these  items,  actual  expenditures  for  overhead  charges, 
for  at  present  they  seem  to  be  far  too  high  —  even  those  offered  by 
the  most  experienced  engineers.  As  a  matter  of  fact,  it  is  found 
that  in  very  few  new  projects  are  accounts  so  kept  as  to  reveal  the 
overhead  charges. 

One  result  of  the  persistence  of  H.  P.  Gillette  in  collating  the 
original  costs  of  the  Washington  railroads  is  that  the  overhead 
charges  are  revealed  in  their  true  value,  as  will  be  seen  in  the  fol- 
lowing table: 

Overhead  Charges  as  determined  from  the  Books  and  Accounts  of 
Original  Cost  of  the  Railroads  in  the  State  of  Washington,  by 
H.  P.  Gillette 


Items 


Engineering  .  .  .  . 
General  expense  .  .  . 
Legal  expense  .... 

Insurance     

Interest  on  advances 
Bond    interest     during 
construction      .     .     . 
Bond  expense  .... 

Taxes 

Undistributed  accounts 


Total  percentage 


Gt.  N. 
767.75 
Miles 

+ 
187.06 


Per 
Cent 

2.50 

.28 


.93 

2.44 
.10 
.02 


6.27 


Gt.  N. 

488 
Miles 


Per 

Cent 

3.23 
.26 


1.23 

3.84 
.18 


8.74 


w. 

AND 

Gt.  N. 
83.9 
Miles 


Per 

Cent 

4.40 
.08 

.01 
3.25 


.17 


7.91 


F.  &  S. 

Ry. 

32.3 
Miles 


Per 

Cent 

3.56 

3.55 

.06 


7.17 


S.&N. 

Ry. 

131.5 
Miles 


Per 
Cent 

3.50 
1.00 


5.25 


9.75 


N.  P. 

R.  R. 

1645 

Miles 


Per 
Cent 

5.51 

1.22 

0.1 


13.60 


.91 


21.25 


O.  R. 

AND 

N. 

501 

Miles 


Per 
Cent 

2.83 

.48 
.02 


2.61 


.05 
2.64 


8.63 


Rates  of  Overhead  Charges.  —  In  the  Milwaukee  Three-cent 
Fare  Case  Milton  G.  Starrett  of  New  York  gave  as  his  opinion 
that  the  following  percentages  should  be  added  to  the  net  cost  to 
reproduce  new  the  property  of  the  corporation : 


22  ENGINEERING  VALUATION 

Engineering  and  Superintendence 4  per  cent 

Organization  and  Legal  Expenses 2  per  cent 

Interest  during  Construction 3  per  cent 

Contingencies 5  per  cent 

Discount  on  Bonds 9  per  cent 

Working  Capital 1  per  cent 

Total 24  per  cent 

In  the  same  case  Professor  M.  E.  Cooley  gave  the  following 
percentages  to  be  added  to  the  inventory,  as  overhead  charges. 

Added  for  Contingencies,  items 5  per  cent 


5  per  cent 
4  per  cent 
^  per  cent 

2^  per  cent 

6  per  cent 
23  per  cent 


Added  for  Contingencies,  general 

Added  for  Engineering 

Added  for  Insurance  during  Construction  . 
Added  for  Organization  and  Legal  Expense 
Added  for  Interest  during  Construction 

Total 

Land  value  includes  10  per  cent  of  cost  of  acquiring. 
Working   capital  =  average   monthly   payroll    and    average    monthly 
vouchers. 

Professor  M.  E.  Cooley  and  his  staff  also  sot  the  following 
percentages  for  overhead  charges  in  the  valuation  of  the  jNIichigan 
Railroads. 

Engineering 4  per  cent 

Legal  Expense ^  per  cent 

Organization  Expense 1§  per  cent 

Interest 3  per  cent 

Total 9  per  cent 

Scrap  or  Salvage  Value  is  the  value  as  old  material,  or 
the  fair  market  price  of  material  or  apparatus  after  deduct- 
ing the  co.st  of  removal.  Prices  for  such  old  apparatus  can 
often  be  obtained  for  material  in  place,  to  be  removed  by  and 
at  the  risk  of  the  buyer.  In  making  up  an  appraisal  it  is 
often  necessary  to  determine  the  scrap  value  of  the  larger 
items,  for  it  is  only  the  difference  between  reproduction  cost 
and  the  scrap  value  that  can  be  depreciated.  In  other  words, 
the  value  of  any  apparatus  or  material  can  never  be  reduced 
below  the  price  it  will  bring  as  junk.  Again,  where  a  factory 
or  public  utility  plant  is  in  operation  as  a  going  concern  it  is  hardly 
fair  to  depreciate  maciiinory  and  ai:)paratus  down  to  junk  value, 
for  the  reason  that  as  long  as  it  is  going  and  doing  its  work  properly 
there  can  be  no  doubt  that  it  is  of  considerably  more  value  than 


VALUE  23 

so  much  junk,  even  though  it  has  passed  what  may  be  considered 
its  fair  length  of  Hfc.  In  appraising  a  property  or  factory  that  is 
in  operation,  it  is  therefore  customary  to  place  what  may  be  con- 
sidered a  salvage  value  on  certain  apparatus  below  which  it  shall 
not  be  depreciated.  Salvage  value  is,  perhaps,  an  arbitrary  term, 
or  rather  represents  an  arbitrary  value,  as,  in  appraising  a  going 
concern,  this  value  is  ordinarily  placed  at  20  or  25  per  cent  of  the 
reproduction  value,  and  the  remaining  80  or  75  per  cent  is  alone 
depreciated. 

Wearing  or  Service  Value  is  that  value  of  apparatus  or  ma- 
terial that  remains  after  deducting  the  value  of  the  material  as 
scrap,  or  the  salvage  value.  The  wearing  value  is  the  value  that 
is  depreciated  in  such  manner  as  may  be  determined  according 
to  the  nature  of  the  apparatus  or  material.  This  value  will 
entirely  disappear  in  time,  either  from  age,  supersession,  inade- 
quacy, obsolescence  or  accident. 

Remaining  Service  Value  is  the  value,  over  and  above  the 
scrap  value,  of  a  piece  of  apparatus,  mechanism  or  material  at 
any  time,  after  deducting  the  depreciation  —  of  any  nature  — 
from  the  wearing  or  service  value.  Depreciation  is  of  several 
kinds,  and  each  kind  has  a  different  effect  on  the  value  of  the 
apparatus,  mechanism  or  material,  and  acts  through  a  greater  or 
lesser  length  of  time.  Depreciation  will  be  discussed  in  a  later 
chapter. 

"The  cost  of  reproduction  is  one  way  of  ascertaining  the  present 
value  of  a  plant  like  that  of  a  water  company,  but  that  test  would  lead 
to  obviously  incorrect  results  if  the  cost  of  reproduction  is  not  diminished 
by  the  depreciation  which  has  come  from  age  and  use."  (Knoxville  v. 
Knoxville  Water  Co.   29  Sup.  Ct.  150.) 

Some  engineers  and  appraisers  maintain  that  deterioration 
occurs  gradually  during  the  existence  of  an  article,  most  of 
it  taking  place  near  the  end  of  its  natural  life.  These  engi- 
neers argue  further  that  because  of  this  slow  rate  of  deteri- 
oration the  depreciation  should  be  charged  off  all  at  once  at 
the  end  of  life,  or  at  such  time  as  a  removal  or  replacement  is 
made.  This  always  results  in  the  robbery  of  a  property  and  the 
placing  of  deterioration  or  depreciation  on  the  future  owners. 
It  is  neither  a  fair  nor  a  conservative  method,  and  in  the  wTiter's 
opinion    cannot    be   too    much    deprecated.      Remaining    service 


24  ENGINEERING  VALUATION 

value  may  also  be  the  wearing  value  with  appreciation  added,  for 
it  is  correct  and  right  that  appreciation  should  be  taken  into 
account  and  has  been  so  indicated  by  the  Supreme  Court : 

"  And  \vc  concur  with  the  court  below  in  holding  that  the  value  of 
the  property  is  to  be  determined  as  of  the  time  when  the  inquiry  is 
made  regarding  the  rates.  If  the  property,  which  legally  enters  into 
the  consideration  of  the  question  of  rates,  has  increased  in  value  since 
it  was  acquired,  the  company  is  entitled  to  the  benefit  of  such  in- 
crease." 

Present  Value  is  the  value  of  an  article,  machine  or  piece  of 
property  of  any  kind  which  is  obtained  after  adding  to  the  remain- 
ing service  value  the  scrap  or  salvage  value.  Present  value  is  the 
worth  of  a  piece  of  property  as  it  exists  at  the  time  of  the  appraisal. 
Present  value  is  sometimes  called  depreciated  value  when  depre- 
ciation has  been  deducted  from  reproduction  value.  While  present 
value  is  nearly  always  considered  the  remaining  service  value  plus 
the  scrap  value,  yet  the  term  present  value  may  also  mean  the 
reproduction  value  with  no  depreciation  deducted  or  appreciation 
added. 

An  appraisal  of  the  property  of  a  public  utilities  company  is 
occasionally  made  in  order  to  determine  the  price  a  city  should 
be  called  upon  to  pay  as  a  purchase  price.  The  present  value  is  the 
one  that  the  courts  use  in  all  cases  as  the  value  for  such  a  sale.  In 
purchasing  a  plant  at  the  present  or  depreciated  value,  a  city  should 
be  prepared  to  expend  an  amount  of  monej^  equal  to  the  difference 
between  the  present  value  as  determined  and  the  cost  to  reproduce 
the  plant  new,  in  order  to  put  the  plant  in  first-class  condition. 

Intangible  Value  is  a  term  used  to  classify  all  those  expenses 
that  are  preliminary  to  the  actual  construction  of  any  kind  of 
property,  such  as  the  legal  expenses  of  organization ;  cost  of  any 
franchise  or  permit  that  may  be  necessary ;  value  of  the  property 
as  a  "going  concern," — that  is,  the  value  of  the  "going  concern" 
portion  of  the  property ;  the  value  of  the  "goodwill,"  if  any;  and 
the  value  of  any  such  developments  as  have  caused  expenditure 
and  yet  do  not  show  in  an  inventory,  such,  for  instance,  as  the 
value  of  a  horse  railway  which  has  been  supplanted  and  displaced 
by  an  electrical  equipment.  In  fact,  all  those  expenses  of  devel- 
opment which  call  for  the  expenditure  of  money  and  yet  do  not 
show  as  tangible  property  in  a  physical  valuation  of  the  whole, 
constitute  intangible  value. 


VALUE  25 

Development  Expense  is  a  term  used  to  include  all  of  the  pre- 
liminary expenses  incidental  to  the  building  up  of  a  corporation 
which  are  not  chargeable  in  any  way  to  the  actual  construction 
of  the  property. 

These  preliminary  expenses  usually  embrace  any  expenditures  on 
account  of  promotion  of  a  concern ;  the  incorporation  and  organiza- 
tion, including  all  incidental  and  office  expenses  relating  thereto ; 
the  cost  of  procuring  the  consents  of  property  holders  when  such 
are  necessary  to  the  corporation ;  all  condemnation  proceedings, 
and,  in  fact,  any  work  that  might  be  comprehended  under  the  head  of 
legal  expenses.  Such  engineering  expenses  as  are  connected  with 
the  preliminary  or  promotion  part  of  the  work,  comprising  surveys, 
expert  estimates,  etc.,  are  also  included,  all  or  any  of  which  are  not 
embraced  in  the  actual  construction  of  the  property ;  any  cost  of 
administration  and  superintendence  incidental  to  the  taking  over 
of  an  old  property,  or  merging  two  or  more  properties,  and  any 
other  expenses  that  may  be  incidental  to  such  merging  or  taking 
over.  These  expenses  are  all  such  as  would  be  difficult  to  locate  in 
any  construction  or  operating  accounts,  and  are  properly  classed 
as  Development  Expenses. 

Some  appraisers  include  under  the  head  of  Development  Ex- 
penses interest  on  capital  and  bond  issues  and  taxes,  including 
the  tax  on  real  estate,  mortgage  tax,  corporation  tax,  personal 
property  tax,  federal  and  state  tax,  franchise  tax,  where  any  is 
charged,  until  such  time  as  the  property  begins  to  pay.  In- 
cidentally, it  may  be  said  that  all  of  these  charges  should  be 
amortized  off  the  books,  but  at  the  present  time  provision  is 
seldom  made  for  that  purpose. 

Franchise  or  License.  — ■  Under  this  heading  should  be  included 
all  expenses  necessarily  incurred  in  procuring  the  franchise  for 
a  public  utilities  corporation,  when  required,  or  the  license  of  any 
other  kind  for  doing  business. 

It  has  been  customary  in  the  past  with  many  corporations  to 
make  a  capital  charge  for  a  franchise,  in  order  to  cover  the  issue 
of  common  stock.  This  has  not  always  been  the  case,  but  it  may 
be  said  that  up  to  a  few  years  ago  it  was  considered  entirely  legiti- 
mate. In  fact,  in  the  New  York  method  of  organization  of  street 
railways  and  electric  lighting  companies  it  was  a  very  common 
thing  to  have  the  property  constructed  by  some  organization, 
which  might  be  called  a  construction  company  and  made  a  con- 


26  ENGINEERING  VALUATION 

tract  to  take  over  all  of  the  bonds  and  stock  as  a  return  for  con- 
structing the  property.  The  entry  on  the  books  of  the  corpora- 
tion would  be  simply,  ''Railway,  —  or  Lighting  Company, — 
built  by  Contract;"  the  price  would  be  the  par  value  of  the  bonds 
and  stock.  This  method  of  bookkeeping  naturally  included  the 
value  of  the  franchise  in  the  first  contract. 

Going  Concern.  —  This  term  is  applied  to  any  value  that  may 
be  placed  upon  such  portion  of  the  property  as  may  be  described 
as  "Going  Concern,"  and  will  be  described  fully  later  on. 

Good  Will.  —  This  term  relates  to  any  value  which  may  have 
accrued  to  a  partnership,  company,  or  public  utilities  corpora- 
tion ])y  reason  of  its  having  competed  with  other  similar  organiza- 
tions for  business.  The  courts  invariably  decide  that  where  there 
is  no  competition  there  can  l^e  no  "Good  Will,"  and  therefore  no 
value  is  allowed  for  such.  This  is  especially  well  brought  out  in 
the  Consolidated  Gas  Case  in  New  York,  and  will  be  referred  to 
later. 

In  appraising  any  physical  property,  its  previous  history  must 
be  studied  in  order  to  learn  if  there  have  been  any  expenditures 
which  do  not  appear  in  the  plain  physical  valuation,  and  if  any 
such  expenses  are  found  they  should  be  brought  to  the  attention 
of  the  parties  in  interest,  and  circumstances  will  dictate  whether 
or  not  any  part  of  them  should  be  charged  or  allowed  in  the  value 
of  the  property. 


CHAPTER   II 
PURPOSES  OF  VALUATION 

Some  of  the  principal  reasons  for  the  valuation  of  the  property 
of  public  utilities  corporations  are  mentioned  below : 

(A)  In  taxing  corporations,  to  assure  the  public  that  such  public 
utilities  corporations  are  bearing  a  proper  share  of  the  burdens. 

{B)  In  regulating  rates  to  assure  the  determination  of  true  and 
proper  rates  to  be  charged  the  public  by  the  corporations  for  serv- 
ices rendered. 

(C)  In  the  issuance  of  bonds,  to  determine  the  actual  physical 
value  of  the  property  upon  which  to  base  the  amount  of  bonds  that 
may  be  issued. 

(D)  In  determining  total  capitalization,  to  show  the  amount  of 
additional  securities  or  stock  which  may  be  issued. 

(E)  In  the  sale  and  transfer  of  property,  either  a  private  sale  as 
between  two  corporations  or  individuals,  or  a  sale  to  a  city  or 
municipal  corporation  at  the  expiration  of  a  franchise,  to  fix  the 
proper  value. 

{F)  In  the  establishment  of  a  uniform  system  of  accounting,  to 
furnish  a  proper  basis  for  the  opening  of  books. 

{G)  For  the  general  information  of  the  corporation  and  the  public, 
for  fixing  terms  of  renewal  of  franchises  and  for  further  adjustment 
of  rates. 

(H)  In  preparing  for  additions  and  extensions  to  show  public 
officials  and  the  general  public  the  earning  power  of  the  property 
as  a  basis  for  the  amount  of  capital  necessary  to  be  provided  for 
such  improvement. 

Again,  a  valuation  should  show  separate  and  total  values  for: 

{A)  Cost  to  reproduce  the  property  new. 

{B)  Present  or  depreciated  value,  as  of  the  date  of  the  appraisal. 

(C)  Physical  development  charges. 

The  first  cost  of  the  property  should  be  determined,  where  it  is 
possible  to  learn  this,  from  the  records,  as  it  is  sometimes  helpful 
in  making  up  a  regular  valuation.^ 

1  See  page  13  for  original  value  of  Washington  Railroads. 
27 


28  ENGINEERING  VALUATION 

The  valuation  of  a  factory  is  ordinarily  made  for  the  purpose  of 
a  transfer  on  account  of  sale,  but  may  he  made  necessary  by  reason 
of  transfer  among  partners,  reorganization  of  a  limited  partner- 
ship or  corporation,  for  determination  of  a  fair  rate  of  taxation,  or 
even  for  purposes  of  inventory  at  the  end  of  a  business  year. 
This  last  item,  inventory,  is  not  ordinarily  alluded  to  as  an  ap- 
praisal, as  it  is  commonly  made  by  regular  employees  of  a  company 
and  based  on  unit  prices  determined  by  the  owners ;  it  sliould  not 
be  considered  as  an  appraisal  or  valuation. 

The  value  of  a  factory  may  be  due  quite  as  much  to  its  geo- 
graphical location  as  to  its  physical  construction,  and  sometimes 
still  more  to  its  location  in  respect  to  supplies,  transportation  and 
market.  It  is  obvious  that  a  factory  located  in  the  prairies  of  the 
West  would  have  little  chance  of  success  as  compared  with  one 
situated  m  Ohio  or  New  England,  where  labor  is  more  plentiful, 
supplies  are  easily  procured  and  the  market  is  close  at  hand ;  and 
it  would,  therefore,  have  little  value  other  than  for  the  material 
of  which  it  was  constructed.  Its  intangible  or  "going  concern" 
or  "good  will"  value  would  be  likely  to  be  very  small. 

In  a  paper  read  before  the  American  Economic  Association, 
Dec.  30,  1909,  Professor  H.  C.  Adams  made  the  following  three 
points. 

"First. — An  authoritative  valuation  is  essential  for  determining 
the  reasonableness  of  the  price  paid  by  the  public  for  services  ren- 
dered. 

"  Second.  —  Without  an  authoritative  valuation  it  would  not  be  possi- 
ble to  administer  in  an  equitable  manner  laws  for  the  control  of  the 
issue  of  securities  by  public  service  corporations. 

"Third.  —  The  amount  which  a  public  service  industry  sliould  pay 
over  annually  to  the  public  treasury,  commonly,  though  erroneously, 
called  taxes,  cannot  be  determined  independently  of  an  analysis  of  the 
value  of  the  industry  considered  as  a  commercial  concern. 

"  In  discussing  the  first  of  the  above  points  I  cxjiress  my  doubt  as 
to  the  i)ertinency  of  the  cost  accounting  i)rincip]e  in  doaHiig  with  rate 
que.stions,  and  say  that  if  the  argument  for  valuation  must  rest  on  the 
pertinency  of  this  principle  the  argument  is  essentially  weak.  In 
place  of  cost  accounting  I  substitute  the  proposition  that  the  owner  of 
railway  property  exhausts  his  right  to  protest  against  the  reduction  or 
modification  of  a  rate,  provided  it  can  be  proved  that  the  aggrc^gate  reve- 
nues cover  aggregate  expenditures,  including  a  reasonable  return  upon 
investments.     Beyond  that  ])oiiit  the  rate  question  is  a  question  of 


PURPOSES  OF  VALUATION  29 

public  interest,  and  the  owner  of  railway  property  has  no  standing  in 
court.  The  distribution  of  the  total  burden  between  various  classes 
of  commodities  and  service  is  no  concern  of  the  stockholder,  except 
upon  the  assumption  that  the  distribution  threatens  to  depress  the 
aggregate  gross  revenues  l)clow  the  constitutional  limit. 

"  In  the  development  of  this  argument  for  valuation  attention  is  called 
to  the  fact  that  the  item,  balance  sheet  cost,  can  be  viewed  from  the 
point  of  view  of  either  of  three  interests ;  namely,  the  interest  of  the 
stockholder  who  desires  that  the  commercial  valuation  should  be  ac- 
cepted as  a  measure  of  balance  sheet  assets ;  second,  the  interest  of  the 
management,  whose  chief  interest  is  in  establishing  and  maintaining 
the  credit  of  the  corporation  in  order  that  the  corporation  may  easily 
borrow  money ;  and,  third,  the  interest  of  the  public,  which  is  chiefly 
concerned  in  arriving  at  a  figure  which  can  be  accepted  as  the  measure 
of  what  the  corporation  can  legally  collect  as  pay  for  service  rendered. 
The  public  insists  that  investment  is  the  measure  of  a  reasonable 
schedule  of  rates." 

There  seems  to  be  a  marked  unanimity  of  opinion  among  writers 
on  railroad  valuation  that  an  appraisal  of  the  i)hysical  property 
of  a  railroad  is  no  criterion  of  its  real  value,  but  that  in  addition 
to  the  value  of  the  physical  property,  the  company  should  be 
credited  with  the  many  past  development  expenses,  with  its 
"good  will"  and  with  its  value  as  a  "going  concern."  Again 
they  claim  that  earning  capacity  should  largely  govern  the  value. 

The  Circuit  Court  of  Appeals,  Eighth  Circuit,  July  2,  1894,  in 
the  National  Waterworks  Co.  v.  Kansas  City,  said : 

"5.  The  difficult  question,  however,  still  remains;  and  that  is,  what 
is  'the  fair  and  equitable  value'  which,  by  the  statute  and  the  ordi- 
nance, the  city  is  to  pay  for  the  waterworks  ?  .  .  .  We  are  not  satis- 
fied that  either  method,  by  itself,  will  show  that  which,  under  all  the 
circumstances,  can  be  adjudged  'the  fair  and  equitable  value.'  Capi- 
talization of  the  earnings  will  not,  because  that  implies  a  continuance 
of  earnings,  and  a  continuance  of  earnings  rests  upon  a  franchise  to 
operate  the  waterworks.  The  original  cost  of  the  construction  cannot 
control,  for  'original  cost'  and  'present  value'  are  not  equivalent 
terms.  Nor  would  the  mere  cost  of  reproducing  the  waterworks  plant 
be  a  fair  test,  because  that  does  not  take  into  account  the  value  which 
flows  from  the  established  connections  between  the  pipes  and  the  build- 
ings of  the  city.  It  is  obvious  that  the  mere  cost  of  purchasing  the  land, 
constructing  the  buildings,  putting  in  the  machinery,  and  laying  the 
pipes  in  the  streets  —  in  other  words,  the  cost  of  reproduction  ^  does 
not  give  the  value  of  the  property  as  it  is  to-day.     A  completed  system 


30  ENGINEERING  VALUATION 

of  waterworks,  such  as  the  companj^  has,  without  a  single  connection 
between  the  pipes  in  the  streets  and  tlie  buildings  of  the  city,  would  be 
a  property  of  much  less  value  than  that  system  connected,  as  it  is, 
with  so  many  buildings,  and  earning,  in  consequence  thereof,  the 
money  which  it  does  earn.  The  fact  that  it  is  a  system  in  operation, 
not  only  with  a  capacity  to  supply  the  city,  but  actually  supplying 
many  buildings  in  the  cit}^,  —  not  only  with  a  capacity  to  earn,  but 
actually  earning,  —  makes  it  true  that  '  the  fair  and  equitable  value '  is 
something  in  excess  of  the  cost  of  reproduction.  The  fact  that  the 
companj^  does  not  own  the  connections  between  the  pipes  in  the  streets 
and  the  buildings  —  such  connections  being  the  property  of  the  in- 
dividual property  owners  —  does  not  militate  against  the  proposition 
last  stated,  for  who  would  care  to  buy,  or  at  least  give  a  large  price  for, 
a  waterworks  system  without  a  single  connection  between  the  pipes 
in  the  streets  and  the  buildings  adjacent.  Such  a  system  would  be 
a  dead  structure,  rather  than  a  living  and  going  business.  The  addi- 
tional value  created  by  the  fact  of  many  connections  with  buildings, 
with  actual  supply  and  actual  earnings,  is  not  represented  by  the  mere 
cost  of  making  such  connections.  Such  connections  are  not  com- 
pulsory, but  depend  upon  the  will  of  the  property  owners,  and  are 
secured  only  by  efforts  on  the  part  of  the  owners  of  the  waterworks, 
and  inducements  held  out  therefor.  The  city,  by  this  purchase,  steps 
into  possession  of  a  waterworks  plant,  —  not  merely  a  completed 
system  for  bringing  water  to  the  city,  and  distributing  it  through 
pipes  placed  in  the  streets,  but  a  system  alrcadj'  earning  a  large  income 
by  virtue  of  having  secured  connections  between  the  pipes  in  the 
streets  and  a  multitude  of  private  buildings.  It  steps  into  possession 
of  a  property  which  not  only  ha^  the  ability  to  earn,  but  is  in  fact  earn- 
ing. It  should  pay  therefor  not  merely  the  value  of  a  system  which 
might  be  made  to  earn,  but  that  of  a  system  which  does  earn.  Our 
effort  has  been  to  deduce  from  the  volume  of  testimony  that  which, 
in  this  view  of  the  situation,  can  be  safely  adjudged  'the  fair  and 
equitable  value.'  The  original  cost  of  the  works  is  not  accurately  and 
satisfactorily  shown.  If  it  would  have  assisted  us  in  reaching  a  con- 
clusion, —  if,  in  consequence  of  our  ignorance  thereof,  we  have  not 
placed  the  value  upon  this  property  which  it  deserves,  —  the  company 
is  alone  to  blame,  for  by  the  production  of  its  books  it  could  have 
clearly  shown  the  actual  cost  of  every  part  and  of  the  whole  of  this 
property.  There  is  a  large  amount  of  testimony  as  to  the  probable 
cost  of  reproducing  the  system,  to  which  strenuous  objection  is  made, 
on  the  ground  of  an  alleged  temporary  and  extreme  depression  in  the 
cost  of  labor  and  material.  We  have  l^efore  us  the  estimate  placed  by 
two  gentlomon  of  experience  and  capacity,  appointed  as  commissioners, 
with  flirection  to  report  'the  fair  and  equitable  value';  but  neither 
by  the  order  of  the  court  appointing  them,  nor  by  their  report,  are  we 


PURPOSES  OF  VALUATION  31 

advised  as  to  what  they  considered  a  criterion  of  the  present  'fair 
and  equitable  value.'  If  they  added  anything  beyond  what  in  their 
judgment  was  the  reasonable  cost  of  reproduction,  we  are  not  advised  as 
to  how  much  tlu^y  added,  or  what  they  took  into  consideration  in 
making  such  addition." 

For  properties  for  which  the  writer  has  had  occasion  to  deter- 
mine the  development  charges,  "good  will,"  etc.,  they  have  been 
found  to  be  a  very  small  percentage  of  the  value  of  the  physical 
property,  and  if  the  amounts  expended  for  "good  will"  be  taken 
out  of  operating  expenses  where  such  expenditures  are  nearly  always 
charged,  and  are  used  to  increase  the  current  dividend  or  surplus, 
it  is  doubtful  if  the  value  of  "good  will"  is  not  thereby  canceled. 

In  such  rare  cases  as  where  the  actual  expenditures  for  getting 
business,  putting  a  concern  or  railroad  on  its  feet,  that  is,  making 
it  a  "going  concern,"  are  charged  in  a  separate  account  and  not 
to  operating  expenses,  then  it  is  perfectly  legitimate  to  capitalize 
this  cost  until  such  time  as  it  may  be  decided  to  amortize  it  off 
the  books.  Even  in  these  cases,  if  such  expenses  are  charged  to 
a  separate  "good  will"  account,  the  net  earnings  are  greater  by 
that  amount  and  the  dividends  may  be  increased  to  some  extent 
thereby. 

In  case  of  the  sale  of  an  old  property  there  can  be  no  doubt 
that  the  value  of  the  "good  will"  which  has  been  accumulating 
for  the  whole  period  of  its  existence  is  of  considerable  moment, 
and  in  comparison  with  a  property  having  an  equal  physical  value, 
but  a  shorter  term  of  existence  and  therefore  having  accumulated 
only  a  limited  business,  the  value  of  the  "good  will "  increases  con- 
siderably the  total  value  of  the  former. 

The  very  basis  of  the  Wisconsin  law  by  which  the  public  utilities 
of  that  state  are  regulated  is  physical  valuation.  To  be  sure,  the 
value  of  intangibles,  such  as  franchises,  good  will  and  going  value 
was  early  recognized  by  the  Commission,  but  these  values,  in  all 
cases  where  allowed,  were  figured  from  the  actual  cost  to  the  cor- 
poration rather  than  from  the  earning  capacity  of  the  stocks  and 
bonds.  In  most  cases,  the  companies  that  had  to  come  before 
the  Commission  avoided  all  contention  for  a  value  based  upon 
their  net  earnings  or  on  stocks  and  bonds,  thus  doing  away  with 
any  claim  for  a  value  of  franchises  or  good  will.  Where  it  could 
be  shown  that  there  had  been  money  expended  for  such  purposes 
that  it  did  not  appear  in  any  physical  valuation  but  was  bound  up 
in  such  intangible  things  as  building  up  the  business,  in  fact,  mak- 


32  EXGINEERIXG  VALUATION 

ing  the  business  a  "going  concern,"  then  these  amounts,  or  an 
amount  as  near  to  the  same  value  as  could  be  calculated,  were 
included  in  the  physical  value.  It  must  be  admitted  that  all  the 
valuations  in  which  the  Wisconsin  Commission  has  had  a  hand 
have  been  made  for  the  purpose  of  rate-making  and  for  taxes  and 
not  for  sales. 

The  decisions  of  the  Commission  are  practically  final,  being 
rendered  so  by  the  wording  of  the  law  creating  the  bod}^ ;  for,  if 
a  public  utility  company  brings  any  evidence  into  court  that  has 
not  first  been  offered  to  the  Commission,  the  court  is  obliged  by 
law  to  return  the  case  to  the  Commission,  which  may  again  investi- 
gate the  matter  and  amend  its  decision  and  orders  in  the  light  of 
the  new  evidence.  In  fact,  the  Commission  becomes  the  referee 
who  makes  the  record  of  facts  upon  which  the  court  acts.  The 
Commission,  in  considering  the  case,  is  not  confined  to  the  strict 
rules  of  evidence  and  is  not  compelled  to  limit  itself  to  the  evi- 
dence given  by  the  parties  in  interest,  but  may  investigate  as  it 
chooses  and  on  its  own  initiative,  and  can  demand  all  documents 
and  evidence  bearing  upon  the  case. 

Mr.  Adams  says : 

"It  is  also  submitted  in  this  connection  that  a  valuation  of  the  physical 
properties  of  municipal  electric  railways  and  a  comparison  of  that 
valuation  with  commercial  valuation  is  the  sun^st  method  of  deter- 
mining whether  or  not  a  municipal  railway  can  be  profitably  operated 
on  less  than  a  5-cent  basis." 


CHAPTER   III 

DIRECTIONS    FOR    THE    VALUATION    OF    TANGIBLE 

PROPERTY 

A  complete  valuation  of  a  tangible  property  must  show  separate 
totals  for  the  following  divisions : 

(A)  Cost  to  reproduce  new. 

(B)  Present  value. 

Cost  to  Reproduce.  To  obtain  this  total  it  will  be  necessary  to 
proceed  somewhat  as  follows  : 

(a)  Get  an  itemized  inventory  of  the  entire  tangible  property. 
To  do  this,  and  to  insure  that  the  list  is  correct,  it  is  well  that 
one  man,  or  party,  make  the  list,  or  inventory,  and  that  the 
second  man  check  the  same,  entering  any  discrepancies  in  the 
list  with  red  pencil. 

(6)  Apply  to  each  item  of  the  inventory  a  unit  cost,  which  must 
include  the  cost  of  material  delivered  at  the  point  of  work,  and 
of  labor,  both  being  as  of  the  date  on  which  the  inventory  is  taken. 
Where  there  have  been  unusual  market  conditions  during  the  few 
years  preceding,  so  that  the  costs  of  some  units  which  cover  large 
portions  of  the  inventory  have  varied  considerable,  it  is  probably 
more  fair  to  take  the  average  price  for  five  years.  This  will  apply 
particularly  to  copper,  to  cast  iron  water  pipe,  to  steel  poles,  and 
some  few^other  articles  of  which  very  large  quantities  are  used.  The 
Supreme  Court  of  the  United  States  decided  in  the  Consolidated 
Gas  Case  that  the  prices  to  be  used  were  those  of  the  date  of  the  ap- 
praisal, but  perhaps  this  particular  portion  of  the  decision  was 
meant  to  be  incidental  only,  for  the  reason  that  in  other  cases  prices 
have  been  used  which  were  averaged  for  the  time  during  which  the 
construction  of  the  particular  plant  might  be  going  on,  and  these 
would  seem  to  be  the  somewhat  fairer  prices  to  use.  Another  case 
is,  where  the  material  in  service  cannot  be  duplicated  except  at  great 
expense,  in  which  case  the  price  of  a  modern  piece  of  apparatus 
which  will  do  the  same  work  must  be  taken. 

(c)    The  cost  of  reproduction  for  each  item  shall  be  determined 

33 


34  ENGINEERING   VALUATION 

as  in  its  existing  form,  and  considered  on  the  basis  of  new  material 
of  a  similar  kind,  except  as  noted  in  clause  (b). 

(d)  Each  unit  price  used  must  be  on  the  basis  of  a  subcontract, 
except  where  this  obviously  would  be  unfair. 

(e)  Add  a  percentage,  say  10  per  cent,  to  the  cost  of  reproduc- 
tion of  all  items  of  construction,  such  as  foundations,  buildings, 
boilers,  engines,  and  other  permanent  plant,  to  cover  contractor's 
profit,  but  no  contractor's  profit  should  be  added  to  purely  equip- 
ment items,  such  as  rolling  stock  of  a  railway,  etc. 

(/)  To  the  sum  of  the  cost  to  reproduce  new  and  the  contrac- 
tor's profit  should  be  added  a  percentage,  commonly  from  12  to 
15  per  cent,  covering  incidentals,  legal  expenses,  carrying  charges, 
brokerage,  contingencies,  city  inspection,  organization,  engineer- 
ing, etc.  This  is  charged  on  all  items  except  real  estate,  tools, 
gas  and  electric  connections,  and  such  other  items  as  are  produced 
by  the  regular  development  of  the  plant.  This  percentage  may 
be  arbitrarily  divided  into  three  parts:  one  third  to  cover  the 
organization  of  the  company,  including  legal  expenses,  together 
with  such  general  office  expenses  and  superintendence,  etc.,  as 
may  accrue;  one  third  to  cover  cost  of  the  engineering;  and  the 
other  third  to  cover  incidentals,  contingencies,  incomplete  inven- 
tories, city  inspection,  carrying  charges,  brokerage,  etc. 

Scrap  Value.  The  scrap  value  of  each  of  the  larger  items  must 
be  fixed  at  a  fair  market  price,  less  the  cost  to  the  customer  for 
removal.  It  is  difficult  in  some  cases  to  get  the  weight  of  appa- 
ratus in  order  to  apply  a  unit  scrap  price  to  it,  so  where  objects  are 
small  the  value  may  be  taken  as  a  percentage  of  the  cost  of  repro- 
duction. Considerable  judgment  will  be  necessary  in  using  this 
method,  because  in  some  cases  materials  of  large  unit  value  as 
junk,  such  as  copper,  are  used  in  the  construction  of  a  machine, 
although  the  proportions  of  copper  and  other  metal  may  be  un- 
known. However,  in  the  case  of  large  pieces,  such  as  large  dyna- 
mos, steam  engines,  boilers,  etc.,  it  is  far  better  to  obtain  their 
total  weight  and  appraise  them  for  scrap  at  some  unit  price  for 
the  total,  except  in  the  case  of  dynamos  and  transformers,  where 
it  is  fairly  easy  to  determine  the  proportionate  weights  of  copper, 
iron,  brass,  etc.,  extending  each  at  the  unit  price  for  scrap  decided 
upon  for  such  metals.  When  scrap  values  are  but  a  small  propor- 
tion of  the  total  values,  it  is  much  better  to  change  the  rate  of 
flcpreciation  enough  to  cover  the  total  value  rather  than  to  make 
use  of  the  scrap  value  at  all. 


VALUATION   OF  TANGIBLE  PROPERTY  35 

Salvage  Value.  This  term  is  used  here  in  contradistinction  to 
scrap  value,  as  meaning  the  value  placed  upon  an  object  below 
which  it  will  not  be  depreciated  for  an  appraisal,  for  in  a  going 
concern  there  are  many  machines,  tools,  and  other  pieces  of  ap- 
paratus that  may  be  said  to  be  worth  a  certain  steady  value  as 
long  as  they  perform  their  functions  properly,  and  it  is  not  fair, 
in  appraising  such  machinery,  to  depreciate  it  below  this  point, 
and  the  salvage  value  is  therefore  held  at  some  arbitrary  point, 
say  25  per  cent  of  its  original  or  reproduction  cost. 

Wearing,  or  Original  Service  Value.  This  is  the  value  deduced 
by  subtracting  the  scrap  or  salvage  value  from  the  reproduction 
cost  new  with  all  percentages  added,  and  it  is  the  value  upon 
which  all  the  depreciation  must  be  calculated. 

Depreciation.  Depreciation  may  be  described  theoretically  as 
deterioration  which  cannot  be  made  good  by  repairs,  and  goes 
steadily  on  during  the  entire  life  of  a  piece  of  apparatus,  a  build- 
ing, or  other  constructed  property.  Practical  depreciation 
though  includes  more  than  the  irreparable  deterioration,  and  here 
will  be  held  as  including : 

(A)  Obsolescence. 

(B)  Supersession. 

(C)  Inadequacy. 

(D)  Wear  and  Tear. 

(E)  Deferred  Maintenance. 

All  of  these  items  will  be  treated  in  full  in  another  chapter,  but 
for  purposes  of  an  appraisal  it  may  be  said  that  they  must  be 
computed  at  the  rate  decided  upon,  for  the  term  of  years  through 
which  the  apparatus,  or  other  article,  has  been  in  use,  and  the  total 
amount  of  depreciation  of  all  of  the  different  items  must  be  sub- 
tracted from  the  working  or  original  service  value.  This  will 
leave  the 

Service  value,  which  is  the  worth  of  the  earning  value  that 
is  left  in  the  apparatus,  and  after  adding  to  it,  or  putting  back 
with  it,  the  scrap  or  salvage  value,  this  becomes  the  present 
value  or  the  worth  of  the  property  at  the  date  on  which  it  is 
appraised. 

Physical  Development  Charges.  In  the  building  up  of  a  property 
of  any  kind  there  are  always  expenditures  which  do  not  show  in 
an  inventory  of  the  property.  Some  of  these  should  be  included 
wholly  with  the  cost  to  reproduce  new ;  others  should  be  included 
with  other  property ;   still  others,  while  they  do  not  appear  at  all, 


36  ENGINEERING  VALUATION 

doubtless  have  been  made,  and  should  have  been  taken  care  of 
by  an  amortization  fund.  These  expenditures  may  be  divided 
into  the  several  classes  : 

(A)  Items,  the  total  cost  of  which  should  be  included  in  the 
reproduction  value,  and  are  such  that  a  definite  estimate  can  be 
made  of  them. 

(B)  Items,  only  the  approximate  cost  of  which  can  be  deter- 
mined, or  for  the  addition  of  which  the  propriety  is  questioned. 

(C)  Items  of  such  an  intangible  nature,  improper  expenditure, 
indeterminate  value  or  antiquity  as  to  prohibit  their  addition  to 
the  cost  of  reproduction  of  the  plant. 

Permanence  of  a  Valuation.  — •  A  valuation  may  be  kept  up  to 
date  quite  readily  if  desired,  readjustments  of  value  being  made 
annually  by  the  deduction  of  the  total  annual  depreciation  from 
the  amount  of  the  original  appraisal,  and  the  addition  to  this 
final  depreciated  value  of  such  new  apparatus,  buildings,  or  other 
property  and  materials  as  have  been  purchased  during  the  year. 
A  complication  is  introduced  in  the  matter  of  deferred  mainte- 
nance which  must  be  determined  each  year  at  the  time  of  the 
valuation.  This  is  the  amount  necessary  to  put  the  property  into 
first-class  condition,  or  it  may  be  described  as  the  value  of 
neglect. 

Where  the  values  have  been  based  originally  on  the  average 
prices  for  a  term  of  years,  it  w\\\  be  necessary  to  revalue  the  origi- 
nal inventory  at  the  new  average  as  arrived  at  by  introducing 
the  price  for  the  last  year  into  that  average  for  the  term  of  years. 


CHAPTER  IV 
INSTRUCTIONS  FOR  VALUATION 

Engineers  and  appraisers  are  many  times  at  a  loss  as  to  methods 
to  be  adopted,  points  to  be  raised,  percentages  to  be  allowed,  how 
to  value  the  franchises,  etc.  Sometimes  they  are  instructed  by  the 
court  before  starting  a  valuation,  but  more  often  each  side  makes 
its  own  appraisal  regardless  of  court  procedure,  and  these  values 
have  to  be  adjusted  afterwards  in  light  of  testimony  taken  before 
the  tribunal.  It  is  rarely  the  case  that  such  well-defined  instruc- 
tions are  issued  by  a  court,  preceding  the  valuation,  as  were  given 
by  Judge  Savage  in  an  action  of  the  Brunswick  and  Topham 
Water  District  v.  Maine  Water  Company.  These  instructions 
are  printed  here  in  full,  and  abstracts  follow  showing  other 
instructions  by  the  same  judge,  in  the  similar  case  of  the  Kenne- 
bec Water  District  v.  City  of  Waterville. 

"Action  by  the  Brunswick  &  Topham  Water  District  against  the  Maine 
Water  Company  under  Priv.  &  Sp.  Laws  1903,  9.  2If5,  c.  158.  After  the 
appointment  of  appraisers  the  petitioner  filed  a  written  request  for  instruc- 
tions to  the  appraisers  so  appointed.  The  case  was  thereupon  reported  to 
the  law  court  to  determine  what  instructions,  if  any,  should  be  given  to 
the  appraisers  so  appointed.     Instructions  given." 

' '  Water  Company  —  Water  District  —  Eminent  Domain  —  in- 
structions TO  Appraisers  —  Franchise  —  Valuation  —  Dam- 
ages —  Evidence  —  Private  and  Special  Laws.  (Sup.  Ct.  of 
Maine  (59  Atl.  Rep.  537),  Dec.  14,  1904.) 

"In  a  proceeding  foi'  the  condemnation  and  appraisal  of  a  portion  of 
a  system  of  water  works  by  the  exercise  of  the  right  of  eminent  domain, 
under  a  statute  which  created  a  water  district  composed  of  two  towns, 
with  power  to  take  a  specified  portion  of  an  entire  system  being  operated 
in  those  two  and  other  towns,  and  which  provided  that  appraisers 
appointed  should  fix  the  valuation  of  the  plant,  property  and  franchises 
taken,  so  that  the  owner  should  receive  just  compensation  therefor, 
and,  further,  that  the  appraiser  should  assess  damages  for  the  severance 
of  that  portion  of  the  plant,  property  and  franchises  taken  from  the 
owner's  entire  water  system  and  franchises,  the  declared  intent  of  the 

37 


38  ENGINEERING  VALUATION 

act  being  that  the  amount  of  the  valuation  of  the  property  taken,  and 
of  the  additional  damages  for  severance,  if  any,  taken  together,  should 
be  so  fixed  as  to  equal  the  difference  between  the  valuation,  before 
severance,  of  the  entire  plant  propert}^  and  franchises,  and  the  value 
after  severance  of  that  portion  of  the  plant,  property  and  franchises 
not  taken,  both  of  the  last-named  valuations  to  l)e  determined  under  the 
principles  of  eminent  domain;  and  it  was  further  provided  that  the 
act  itself  should  take  effect  when  approved  by  a  majority  vote  of  the 
inhabitants  of  each  of  the  towns  which  were  to  compose  the  water 
district,  and  that  such  an  approval  should  constitute  an  acceptance  by 
said  water  district  of  the  methods  of  appraisal  prescribed  by  the  act, 
and  should  bind  the  water  district  and  the  water  company  thereto  — 
it  is  held  that  the  appraisers  should  be  instructed,  among  other  things, 
in  accordance  with  the  following  principles : 

"1.  In  applj'ing  the  rule  that  the  basis  of  all  calculations  as  to  the 
reasonableness  of  rates  to  be  charged  by  a  public  service  corporation  is 
the  fair  value  of  the  property  used  by  it  for  the  service  of  the  public, 
franchise  values  are  not  to  be  disregarded,  that  the  element  of  going 
concern  value  is  not  to  be  considered  only  as  involved  in  structure  value, 
and  that  property  value,  in  this  connection,  is  not  merely  structure 
value. 

"  2.   The  fact  that  the  structure  taken  is  in  use,  and  the  further  fact 

that  it  may  lawfully  be  used  where  it  may  properly  enhance  its  value. 

"  3.   The  direction  of  the  statute  to  the  appraisers  to  fix  the  valuation 

of  the  plant  and  of  the  franchises  is,  in  substance,  a  direction  to  fix  the 

valuation  of  the  plant  as  affected  by  the  franchises. 

"4.  While  actual  cost  bears  upon  reasonableness  of  rates,  and  as  well 
upon  the  present  value  of  the  structure  as  such,  in  estimating  structure 
value,  prior  cost  is  not  the  only  criterion  of  present  value.  If,  by  the 
rise  of  prices,  the  present  value  of  the  structure  is  greater  than  the 
cost,  the  owner  is  entitled  to  the  benefit  of  it ;  if  less  than  the  cost,  the 
owner  must  lose  it.  And  the  same  factors  should  be  considered  in 
estimating  the  reasonableness  of  rates. 

"5.  '  Reasonable'  is  a  relative  term,  and  what  is  reasonable  depends 
upon  many  varying  circumstances.  But  in  determining  what  are  rea- 
sonable rates,  so  as  to  produce  a  reasonable  return  to  the  owner  upon 
his  investment,  the  amount  of  money  which  has  been  actually  and 
wisely  expended  in  producing  the  plant  is  a  primary  consideration. 

"  6.  The  question  of  the  reasonableness  of  rates  relates  to  both  the 
owner  and  the  customer.  But  in  case  of  conflict  they  must  be  reason- 
able to  the  customer  in  any  event. 

"  7.  A  public  service  companj'  cannot  lawfullj'  charge  more  than  the 
services  are  reasonably  worth  to  the  public  as  individuals,  even  if 
charges  so  limited  would  fail  to  produce  a  fair  return  to  the  owner 
upon  his  property  or  investment. 


INSTRUCTIONS  FOR  VALUATION  39 

"  8.  Profits  which,  in  the  aggregate,  exceed  a  fair  return  on  the  owner's 
property  and  franchises,  do  involve  unreasonable  rates,  and  furnish 
no  criterion  of  either  francliise  values  or  going  concern  values.  But 
what  would  be  a  fair  return  must  depend  upon  the  circumstances  of 
each  particular  case. 

"  9.  The  issue  of  the  reasonableness  of  rates  charged,  as  well  as  all 
other  issues  affecting  value,  are  to  be  determined  by  a  preponderance 
of  the  evidence. 

"10.  The  value  is  to  be  fixed  as  of  January  1,  1904,  and  in  deter- 
mining the  value  on  that  day  market  prices  of  materials  and  labor 
on  that  day  or  during  a  period  long  enough  before  that  time  for  con- 
struction, are  the  standards,  rather  than  former  prices.  And  as,  to 
be  completed  on  that  day,  the  construction  of  the  plant  must  have 
been  begun  before,  interest  upon  the  money  invested  in  the  plant  during 
construction  and  before  completion  is  a  part  of  the  cost  of  construction. 

"11.  Damages  for  severance  are  to  be  allowed  as  prescribed  in  the 
plaintiff's  charter. 

"  12.  While  it  is  not  constitutionally  competent  for  the  Legislature 
to  prescribe  a  rule  of  damage,  the  rules  prescribed  in  this  case  are 
to  be  deemed  effective,  not  because  they  were  established  by  the 
Legislature,  but  because  by  the  approval  of  the  charter  they  were 
assented  to  by  the  inhabitants  of  the  water  district. 

"13.  In  estimating  the  value  of  a  public  service  to  the  public  or  the 
customers,  one  of  the  elements  necessary  to  be  considered  is  the  expense 
at  which  the  public  or  customers,  as  a  community,  might  serve  them- 
selves, were  they  free  to  do  so,  and  were  it  not  for  the  practically 
exclusive  franchises  of  the  supplying  company.  Water  is  to  be  regarded 
as  a  product,  and  the  cost  at  which  it  can  be  produced  or  distributed  is 
an  important,  though  not  the  only,  element  of  its  worth. 

"14.  The  worth  of  a  water  servqce  in  such  connection  is  the  worth 
to  the  customers  as  individuals,  but  as  individuals  making  up  a  com- 
munity of  water  takers. 

"15.  Communities  are  entitled  to  the  benefit  of  existing  natural 
advantages.  If  there  is  more  than  one  source  of  supply,  other  things 
being  equal,  the  community  is  entitled  to  have  the  least  expensive 
one  used,  and  the  supplying  company  is  not  entitled  to  charge  an 
enhanced  rate,  based  in  part,  at  least,  upon  the  cost  of  using  a  more 
expensive  source. 

"  16.  When  the  rates  which  furnish  a  basis  for  estimating  value  are 
earned  in  part  by  property  taken  and  in  part  by  property  not  taken, 
the  appraisers  must  discriminate,  and,  so  far  as  value  may  depend 
upon  rates,  they  should  charge  the  property  taken  for  only  its  fair 
proportion  of  the  earnings. 

"17.  While  the  award  of  the  appraisers  must  be  made  under  the 
principles  of  eminent  domain,  it  must  be  made  upon  such  principles  of 


40  ENGINEERING  VALUATION 

eminent  domain  as  were  agreed  to  by  the  voting  constituents  of  the 
water  district  by  approving  the  charter." 

"  Report  from  Supreme  Judicial  Court,  Kennebec  County 

"  Action  by  the  Kennebec  Water  District  against  the  City  of  Waterville 
and  others.     Case  reported.     Instnictions  to  appraisers  given. 

"  On  report.  Instructions  to  appraisers  given  by  the  court  to  deter- 
mine the  valuation  of  property  of  the  Maine  Water  Company,  and 
acquired  by  the  plaintiff  by  the  exercise  of  the  right  of  eminent  domain." 
Sup.  Jud.  Ct.  Maine  (54  Atl.  Rep.  2). 

"8.  In  determining  the  present  value  of  the  company's  plant,  the 
actual  construction  cost  thereof,  with  proper  allowances  for  depre- 
ciation, is  legal  and  competent  evidence,  but  it  is  not  conclusive  or 
controlling. 

"  9.  The  request  that  'under  no  circumstances  can  the  value  of  the 
plant  be  held  to  exceed  the  cost  of  producing  at  the  present  time  a  plant 
of  equal  capacitj''  and  modern  design'  should  not  be  given.  Among 
other  things,  it  leaves  out  of  account  the  fact  that  it  is  the  plant  of  a 
going  concern,  and  seeks  to  substitute  one  of  the  elements  of  value 
for  the  measure  of  value  itself. 

******* 

"18.  The  appraisers  may  properly  consider  what  the  existing  system 
can  be  reproduced  for,  but  the  cost  of  reproduction  will  not  be  con- 
clusive. It  will  be  evidence  having  some  tendency  to  prove  present 
value.  The  inquiry  along  the  line  of  reproduction  should  be  limited 
to  the  replacing  of  the  present  system  by  one  substantial!}'  like  it. 

"  19.  In  estimating  even  the  structure  value  of  the  plant,  allowance 
should  be  made  for  the  fact,  if  proved,  that  the  company's  water 
system  is  a  going  concern,  with  a  profitable  business  established, 
and  with  a  present  income  assured  and  now  being  earned. 

"  20.  So  far  as  the  water  system  is  practically  exclusive,  the  element 
of  good  will  should  not  be  considered. 

******* 

"  22.  In  addition  to  structure  values,  the  appraisers  should  allow 
just  compensation  for  all  the;  franchises,  rights  and  privileges  to  be 
taken. 

"  23.  The  value  of  the  franchise  depends  upon  its  net  earning  power 
present  and  prospective,  developed  and  capable  of  development,  at 
reasonable  rates ;  and  the  value  to  be  assessed  is  the  value  to  the  seller, 
and  not  to  the  buyer. 

"  24.  In  considering  prospective  development  of  the  use  of  a  franchise, 
consideration  must  also  be  had  of  the  fact  that  further  investment 
may  be  necessary  to  develop  the  use,  and  of  the  further  fact  that  at 
any  stage  of  development  the  owner  of  the  franchise  will  bo  entitled 
to  charge  only  reasonable  rates  under  the  conditions  then  existing." 


CHAPTER  V 
FORMS   FOR  USE  IN  MAKING  A  VALUATION 

For  making  the  first  record  of  miscellaneous  material  and  for 
checking  the  same,  the  writer  in  fifteen  years'  practice  has  never 
found  any  better  form  than  a  sheet  of  letter-size  paper  with  two 
dollar  columns,  horizontal  rulings  one  half  inch  apart,  and  per- 
forations for  the  sheets  to  be  carried  in  one  of  the  many  forms  of 
ring  binders.  This  sheet  should  have  a  margin  of  one  inch  at  the 
left  for  binding,  next  a  column  five  eighths  inch  in  width  for 
quantities,  and  a  narrow  column  at  the  left  of  the  dollar  columns 
for  unit  prices,  although  prices  are  only  attached  to  these  inven- 
tory sheets  for  small  and  miscellaneous  articles  and  items  that 
cannot  be  assembled,  and  where  the  total  number  only  is  used  in 
the  tabulation. 

In  making  the  first  list  or  inventory  of  miscellaneous  property 
the  person  making  it  should  list  everything  as  he  comes  to  it, 
starting,  say,  at  the  right  or  left  of  any  room,  listing  each  item, 
proceeding  about  the  place  by  some  well-marked  route  so  that  the 
checker  who  goes  over  his  work  can  easily  find  the  items  by  follow- 
ing the  same  path.  All  classification  of  items  should  be  left  to  the 
office  force  and  not  be  attempted  in  the  field.  There  are  some  classes 
of  property  that  can  be  subdivided  for  inventorying ;  for  instance, 
buildings  can  be  put  in  charge  of  one  division,  and  in  the  pre- 
liminary discussion  the  place  where  buildings  end  and  other 
materials  begin  can  be  settled.  Thus :  brick  stacks,  cranes,  and 
building  foundations  should  be  listed  with  the  buildings,  while 
machinery  foundations  belong  with  the  apparatus  which  they 
support.  In  all  electrical  stations  all  steam  apparatus  and  appli- 
ances can  be  put  in  charge  of  one  division,  the  electrical  apparatus 
in  charge  of  another.  Turbo-electric  generators  are  divided  in 
accounting,  but  should  be  listed  with  steam  plant.  Wiring  (not 
for  lighting  the  building)  can  be  divided  into  inside  and  outside, 
the  first  running  from  machine  to  switchboard  and  from  switch- 
board to  the  first  fastening  outside  the  building ;  the  second  start- 

41 


42  ENGINEERING  VALUATION 

ing  at  the  first  fastening  outside  the  building  and  taking  in  all 
distributing  lines.  High  tension  transmission  lines  should  be  in  a 
class  by  themselves,  but  can  be  in  charge  of  an  overhead  line  divi- 
sion if  found  most  convenient.  Underground  distribution  will 
quite  naturally  be  in  charge  of  some  one  familiar  with  the  work 
in  the  particular  place,  for  inventory,  but  can  be  checked  by  any 
one  who  is  competent.  Underground  distribution  will  start  at  the 
first  permanent  attachment  inside  the  station  and  end  at  the 
service  switch  inside  the  customs  pressures,  the  switch  to  be  in- 
cluded. All  house  connections  should  be  valued  from  the  point 
where  they  leave  the  pole,  or  main  line  of  subway,  or,  in  case  of 
gas  or  water  services,  from  the  main  to  the  service  block  or  meter 
inside  the  customer's  premises.  A  decision  of  the  courts  (62 
Fed.  Rep.,  853)  has  made  it  plain  that  although  these  connections 
may  not  belong  to  the  Company,  yet  they  should  be  valued  as  a 
part  of  the  property. 

In  factories  different  rooms  are  ordinarily  devoted  to  separate 
parts  of  the  manufacturing  process,  and  suitable  distinct  divisions 
of  the  listing  will  naturally  suggest  themselves. 

AVhat  the  writer  wishes  to  make  plain  is  the  fact  that  when 
subdivisions  are  made  for  the  purpose  of  listing  it  is  almost 
impossible  to  get  every  item  on  the  list  for  the  reason  that  the 
person  in  charge  of  one  division  of  lists  thinks  certain  items 
belong  on  the  list  of  another  division.  Care  therefore  must  be 
taken  that  in  dividing  up  the  work  the  divisions  are  most  dis- 
tinct and  are  such  as  to  cause  little  trouble  from  doubt  as 
to  who  shall  include  the  various  items.  While  every  case  is 
different  and  a  properly  equipped  appraiser  should  be  able  to 
divide  his  force  and  develop  forms  in  such  manner  as  to  take 
in  all  items,  a  few  forms  for  specific  cases  of  valuation  have  been 
included  under  their  special  heads. 

Class  of  Men  for  Listing  and  Checking.  —  As  to  the  class 
of  men  to  do  listing,  checking,  and  classifying,  the  writer 
has  always  been  able  to  get  his  lists  from  the  people  owning  the 
property  under  valuation,  except  in  such  cases  as  have  been 
in  dispute,  when  properly  trained  engineers,  acquainted  with  the 
particular  work  being  valued,  have  been  obtained.  For  checking 
the  lists  after  the  first  inventory,  young  graduate  engi- 
neers have  been  found  satisfactory  for  going  over  machinery, 
cars,  track,  poles,  wire,  etc.,  but  almost  any  class  of  men  at  all 
familiar  with  ordinary  items  can  do  this  checking.     It  is  safe  to 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         43 

say  that  no  inventory  was  ever  made  that  could  not  be  expanded 
with  items  omitted ;  these  must  be  discovered  by  the  checkers 
and  placed  on  the  lists.  For  classification,  assembling,  setting 
prices,  computing,  and  making  final  sheets,  the  writer  has  come 
to  the  conclusion,  after  long  tests,  that  only  trained  accountants 
are  fully  competent  for  this  part  of  the  work.  It  is  most  necessary, 
however,  to  have  an  engineer  in  charge  familiar  with  the  particu- 
lar class  of  work  being  appraised.  Many  engineering  appraisers 
use  young  technical  graduates  almost  wholly,  but  for  the  final 
classification  and  assembly  the  writer  is  satisfied  that  this  is  not 
the  best  practice. 

Forms  for  Classification  and  Assembly.  —  Forms  for  classifica- 
tion and  assembly  will  have  to  be  developed  for  each  class 
of  work  in  a  general  appraisal,  but  for  those  cases  of  valuation 
now  coming  into  prominence,  such  as  for  railroads,  street  rail- 
ways, electric  light  plants,  gas  plants,  and  water  works,  there 
are  several  forms  that  can  be  used  with  considerable  profit,  for 
the  reason  that  they  bring  to  one's  attention  all  the  data  necessary 
for  a  complete  valuation.  For  power  house  inventory  Professor 
Lucke  of  Columbia  University  has  issued  a  book  of  forms  which 
completely  covers  all  the  items  contained  in  an  electric  power 
plant.  A  study  of  this  book  will  assist  greatly  in  elaborating 
forms  to  fit  special  cases.  For  general  all-round  use,  though,  the 
forms  devised  by  the  Joint  Engineering  Board  of  the  Wisconsin 
Railroad  Commission  and  the  Wisconsin  Tax  Commission  cover 
most  thoroughly  the  plants  of  the  PubHc  Utilities  Corporations. 
By  courtesy  of  Professor  W.  D.  Pence,  engineer  of  the  board, 
I  am  permitted  to  show  herewith  copies  of  these  forms.  They 
have  been  developed  from  the  original  forms  used  in  the  Michi- 
gan appraisal  of  1900,  improved  by  those  in  charge  of  the  Wis- 
consin Appraisal  of  1903,  and  still  further  developed  by  subse- 
quent appraisals  with  assistance  of  the  railroad  officials,  and 
will  be  still  further  improved  and  changed  as  the  chance  offers. 
They  should  be  taken  as  tentative  only,  therefore,  and  subject  to 
change  at  any  time.  The  forms  will  be  shown,  applied  each  to 
its  own  special  class  of  appraisal. 

It  is  only  in  case  of  a  complete  itemized  appraisal  that  it  is 
necessary  to  collect  such  detail  as  is  shown  in  the  ahove-mentioncd 
forms.  For  limited  valuations,  where  only  the  most  general 
knowledge  of  values  is  required,  much  simpler  forms  can  be  devised. 
In  order  that  typewriting  may  be  made  uniform,  the  writer  has 


44  ENGINEERING  VALUATION 

used  a  sheet  of  letter  size  ruled  with  double  lines  for  the  columns 
of  typewritten  figures :  this  insures  keeping  figure  columns 
uniformly  spaced.  It  is  also  handy  to  have  a  distinct  ruling 
at  top  and  bottom  separating  the  "brought  forward"  and  "car- 
ried forward"  figures  from  the  rest.  In  addition,  it  is  also  well 
to  have  separate  ruled  columns,  one  at  the  left  of  the  sheet  in- 
side the  one  inch  space  left  for  binding,  for  quantities,  and  an- 
other at  the  left  of  the  inside  dollar  column  for  unit  prices.  When 
copies  are  liable  to  be  wanted,  it  is  well  to  make  the  first  carbon 
copy  of  onion  skin  paper,  with  carbon  both  front  and  back,  so 
that  it  will  blue  print  plainly.  Another  way  is  to  typewrite 
the  final  sheets  on  paraffined  paper,  which  will  enable  one  to 
make  blue  print  copies  as  needed.  Blue  prints  are  far  superior 
to  typewritten  copies  in  the  impossibility  of  error  in  the  print. 

Form  for  Tabulating  Final  Results  of  Appraisal.  —  A  convenient 
form  for  tabulating  an  appraisal  for  adding  percentages,  for  com- 
puting depreciation  and  for  determining  present  value  should  be 
made  of  wide  paper  with  columns  enough  to  develop  the  headings 
hereafter  described.  In  such  forms  every  separate  division  of  items 
and  value  will  show,  as  well  as  just  what  action  was  taken  with 
each  of  them. 

The  first  column  at  the  left  should  be  about  an  inch  wide 
for  use  in  binding.  Next  should  come  a  column  about  three  or 
four  inches  in  width  which  will  take  the  names  of  all  items  or 
divisions.  For  the  purpose  of  placing  proper  depreciation  it  will 
be  necessary  to  segregate  the  items  by  date  of  installation  as 
well  as  by  name.  The  following  columns  can  be  of  any  width 
to  suit;  the  appraiser  can  judge  of  this  by  the  character  of  the 
valuation  or  the  figures  to  which  he  will  expect  it  to  amount. 


Columns 

Headings 

A. 

Year  and  date  installed. 

B. 

Age,  in  years,  to  date. 

C. 

Cost  to  reproduce  new. 

D. 

Sub-totals  of  C. 

E. 

Per  cent  for  contractor. 

F. 

Total  C  +  E. 

G. 

Per  cent  for  engineering  and  contingencies.     C 

lated  on  F. 

H. 

Total  F  -f-  G. 

J. 

Scrap  or  salvage  value  to  be  deducted  from  H. 

K. 

Net  wearing  or  service  value  H  —  J. 

Calcu- 


Sheet  No 

Compiled  by Checked  by 

Date 

8  7  8  9  10 


Maint. 
G.,  F. 
or  P. 


COND. 

% 


Size  of 


sheet 


Total 

Cost 

New-Scrap 

(1)X(4) 


84"X19" 


Pres. 
Total  Ser- 
vice Val. 
(5)X(6) 


Total 
Scrap 
Value 
(1)X(3) 


Total 

Cost  New 

(1)X(2) 


Total 

Pres. 

Value 

(7) +(8) 


Valuation  as  of  Date 

Name  of  Company - . 

Name  and  Location  of  Plant-. 


POWER  PLANT  EQUIPMENT 


Sheet  No 

Compiled  by    Checked  by. 

Date - - 


1 

2 

3 

4 

5 

e 

7 

■ 

9 

10 

H 

.„„,»„ 

'■™" 

"^s" 

.„..,.. 

™ 

.„„.. 

Fsi" 

.„,„, 

L=»- 

SS 

Weioht 

tS.' 

'E' 

.M^^Mmofl 

.„ 

.,. 

"il- 

OND. 

mxH)"' 

""xie"' 

iifS 

t"xm' 

(7)+(8) 

Size  of 

Sheet 

8i"xl9" 

FORMS  FOR  USE  IN  MAKING  A  VALUATION         45 

Follow  here  with  a  double  line  of  ruling. 

L.         (rate)  Obsolescence  or  supersession. 

M.   (rate)  Inadequacy. 

N.         (rate)  Age  and  wear  and  tear. 

0.         (rate)  Deferred  maintenance. 

P.         Total  depreciation  L  +  M  +  N  +  O. 

Follow  here  with  a  double  line  of  ruling, 

R.         Remaining  or  service  value  after  deducting  P,  or  K  —  P. 
S.         Scrap    or    salvage    value,  to    be    added  to   R   (same 

as  J). 
T.         Total  present  value       R  +  S. 

Follow  here  with  a  double  line  of  ruling. 

U.         Annual  depreciation  at  the  current  rate  and, 

U  =  — — — — h  Deferred  maintenance  at  the  date  of  appraisal. 

B 

The  above-described  form  is  for  use  in  connection  with  the  most 
elaborate  appraisal.  The  form  for  summarizing  the  items  of  a 
power-plant,  as  devised  by  the  Engineering  Board  of  the  Wisconsin 
Commission,  is  shown  on  the  following  page.  The  only  important 
modifications  are  use  of  dollar  values  only,  and  the  use  of  "Condi- 
tion, per  cent"  in  connection  with  depreciation.  This  item  is  fully 
described  in  the  chapter  on  "Depreciation,"  and  tables  are  fur- 
nished for  the  values.  The  forms  599  and  600  are  two  others 
devised  by  the  Joint  Engineering  Department  that  are  used  for 
the  detailed  and  final  summaries. 

Valuation  of  Real  Estate.  —  In  appraising  the  Real  Estate 
owned  by  a  Public  Utilities  Corporation,  consideration  will  have 
to  be  given  to  the  purpose  for  which  such  property  is  to  be 
used  ;  for  instance,  the  value  of  a  site  for  a  steam  power  station 
with  a  necessity  for  getting  in  fuel,  having  condensing  water 
handy,  etc.,  will  be  quite  different  from  that  of  a  site  for  a  car 
barn,  which  may  be  located  on  relatively  cheaper  property,  or 
at  least  on  property  subject  to  different  influences.  The  site  for 
an  office  building  may  be  combined  with  that  for  a  sub-station 
or  even  with  that  of  a  car  barn. 

The  value  of  railroad  real  estate  is  subject  to  more  variations 
and  to  more  influences  than  that  of  any  other  public  utility. 
Particularly  is  this  so  for  terminals.  Rights  of  way  arc  ordinarily 
purchased  by  the  acre  at  a  price  considerably  in  advance  of  the 


46 


ENGINEERING  VALUATION 


Joint  Engineering  Dept. 

Wis.  Tax  &  R.R.  Commissions 


Form  599 


Sheet  No. 


DETAILED   SUMMARY 


Company 
Location. . 


Valuation  as  of  _ 
Date  Compiled. 

Compiled  by 

Checked  by 


Item 


X 


QQ 


Unit 


Quan- 
tity 


Unit 
Price 


Cost OF 
Repro- 
duction 


Scrap 

Value 


COND. 
% 


Present 
Value 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         47 

Form  600 

Joint  Engineering  Dept.  Sheet  No. 

Wis.  Tax  &  R.R.  Commissions 

FINAL   SUMMARY 

Valuation  as  of 

Company Date  Compiled 

Compiled  by 

Location 

Checked  by 


For  typewriting 
Size  of  sheet  84"  X  11'^ 


48  ENGINEERING  VALUATION 

local  prices  for  farm  land.  In  passing  through  populated  cities 
it  is  often  necessary  to  use  village  or  city  lot  values.  In  apprais- 
ing a  terminal  the  location  and  surroundings  will  determine  the 
value,  which  is  almost  invariably  much  in  advance  of  the  original 
purchase  price.  In  fact,  a  terminal  influences  both  ways;  the 
value  of  the  surrounding  property  may  have  increased  greatly,  due 
to  the  proximity  of  the  terminal,  and  the  value  of  the  terminal  site 
itself  may  have  been  greatly  enhanced  by  the  construction  of  ware- 
houses and  other  buildings  built  to  take  advantage  of  its  prox- 
imity. The  value  of  real  estate  belonging  to  a  factory  will 
vary  with  its  location  as  regards  railroad  connections  and  water 
transportation,  its  proximity  to  the  central  or  business  portion 
of  the  community  in  which  it  is  situated ;  in  fact,  it  is  subject  to 
precisely  the  same  influences  as  is  the  other  adjacent  real  estate. 
The  value  of  real  estate  is  the  one  item  that  more  than  any  other 
is  liable  to  appreciate,  and  at  times  this  appreciation  of  value  is 
used  to  increase  the  capitalization.  The  Supreme  Court  has 
decided  that  this  appreciation  of  land  values  must  be  allowed 
in  any  appraisal,  and  it  certainly  is  a  legitimate  value,  but  it  has 
always  been  a  question  with  the  writer  whether  it  is  right  to 
consider  the  increased  value  as  a  part  of  capital.  It  does  not 
seem  proper  to  pay  dividends  on  an  increment  which  is  not  an 
investment,  although  a  perfectly  legitimate  part  of  the  property 
owned  by  the  corporation.  In  fact  it  is  entirely  possible  that  such 
increment  might  become  so  large  that  the  regular  charge  or 
rate  for  the  use  of  the  products  of  the  public  utility  company 
would  be  prohibitive,  or  if  the  rate  is  a  fixed  one,  as  in  street  rail- 
way fares,  would  not  produce  sufficient  income  to  meet  a  fair 
rate  of  interest  on  the  fair  increase  of  value.  If  placed  in  the 
surplus  this  increment  would  be  reflected  in  the  market  value 
of  the  shares,  which  could  be  sold  for  an  amount  representing  the 
addition  of  the  increase  in  value.  Should  the  property  be  re- 
organized under  a  new  name,  or  should  it  be  sold,  the  advance  in 
value  of  the  real  estate  would  be  carried  by  the  price  paid,  and 
would  have  a  tendency  to  balance  any  depreciations  in  other 
parts  of  the  property.  In  other  words,  thus,  nothing  should  be 
added  to  capital  for  appreciation  any  more  than  that  the  capital 
should  be  decreased  because  of  depreciation.  The  following  ex- 
tract from  Treasury  Decisions  shows  how  the  government  looks 
upon  increase  of  land  values  on  account  of  the  special  Excise 
Tax. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         49 

"  43.  Profits  realized  on  sale  of  real  estate  during  the  year,  also  in- 
crease in  value  of  unsold  jorojierty,  if  taken  up  on  the  books  of  the 
corporation,  to  be  included  in  income." 

******* 

"  62.  In  the  case  of  lands  bought  prior  to  January  1,  1909,  and  sold 
during  any  subsequent  year,  tlie  profits  arising  from  such  sale,  if  no  ac- 
counting of  increased  value  of  land  was  made  in  returns  for  previous 
years,  should  be  prorated  in  accordance  with  the  number  of  years  the 
land  was  held  by  the  corporation  and  the  number  of  years  the  law  was 
in  effect."     (Internal  Revenue  T.  D.  1742,  Dec.  15,  1911.) 

The  value  of  a  factory  site  may  become  so  great  through  growth 
of  its  surroundings  that  it  can  be  sold  for  enough  to  purchase  a 
new  site  and  to  construct  new  buildings  better  adapted  to  the 
purpose,  better  situated  as  regards  transportation  facilities,  and 
many  times  better  located  for  accessibility  of  the  labor  employed. 
In  such  a  case  it  would  of  course  be  folly  to  hold  the  land  longer. 

Matheson  says: 

"While,  however,  it  may  be  equitable  in  the  case  of  a  change  of 
partners  or  business  to  revalue  the  site,  or  take  into  account  its  pro- 
spective value,  the  possible  increment  should  not  be  mixed  up  with 
the  annual  accounts  of  the  undertaking  farther  than  to  justify  the 
maintaining  the  capital  value  of  the  land  itself  without  depreciation." 

Again,  in  valuing  a  railroad  terminal,  should  the  land  l)e  treated 
as  vacant,  in  which  case  there  would  have  been  no  surroundings 
built  up  for  use  of  the  terminal,  and  therefore  no  advance  in  value 
due  to  increased  value  of  the  surrounding  territory?  Next,  in 
valuing  the  surrounding  real  estate,  should  it  be  valued  with  build- 
ings and  other  improvements,  or  as  unimproved  real  estate  of 
increased  value  due  to  the  adjacent  terminal  ?  There  are  many 
other  questions  which  arise  in  such  an  appraisal. 

In  appraising  land  values,  ordinarily  the  price  obtained  at 
the  last  sale  of  the  property  will  be  the  basis  of  a  new  price,  but 
when  the  values  have  been  much  increased  from  any  of  many 
circumstances,  it  will  be  necessary  to  compare  unit  prices  of  the 
land  under  consideration  with  those  of  adjacent  territory,  or 
sales  of  near-by  property,  influences  of  other  property  on  that 
being  appraised,  and  lastly  by  a  comparison  of  values  placed  by 
the  assessor.  Growth  and  prosperity  of  a  city  influences  land 
values  for  an  increase;  the  location  of  undesirable  industries 
adjacent  to  land  often  acts  to  depreciate  its  value.  The  appraisal 
of  land  is  a  job  for  experienced  heads  and  even  then  the  best  of 


50  ENGINEERING  VALUATION 

land  appraisers  will  sometimes  arrive  at  widely  differing  results. 
One  of  the  latest  discussions  of  the  handling  of  land  values  is  that 
of  Commissioner  Maltbie  "in  the  matter  of  the  Gas  and  Electric 
Rates  Charged  by  the  Queens  Borough  Gas  and  Electric  Corn- 
pan}',"  dated  June  23,  1911.  On  the  subject  of  appreciation  of 
land  the  Commissioner  has  the  following  to  say : 

Appreciation  of  Land 

"Land  differs  from  most  property  in  that  it  generally  appreciates  in 
value,  and  the  question  has  been  raised,  whether  land  should  be  in- 
cluded in  'fair  value'  in  rate  cases  at  its  original  cost  or  at  its  esti- 
mated value  at  the  time  the  rate  is  to  be  fixed.  It  is  well  settled  that 
other  property  should  be  taken  at  its  then  value,  but  it  has  been  argued 
that  in  the  case  of  land  the  original  cost  should  be  used.  Counsel  for 
the  City  of  New  York  in  the  Consolidated  Gas  case  endeavored  to  estab- 
lish this  principle,  urging  that  return  should  not  be  allowed  upon  money 
never  spent  and  that  appreciation  of  land  does  not  represent  any 
investment.  Mr.  Justice  Peckham  who  \\Tote  the  opinion  in  this  case 
said  (WiUcox  v.  Consolidated  Gas  Co.,  212  U.S.,  [^19,  decided  Jan.  4, 
1909) : 

"  '  And  we  concur  with  the  court  below  in  holding  that  the  value  of 
the  property  is  to  be  determined  as  of  the  time  when  the  inquir}'  is  made 
regarding  the  rates.  If  the  property,  which  legally  enters  into  the 
consideration  of  the  question  of  rates,  has  increased  in  value  since  it 
was  acquired,  the  company  is  entitled  to  the  benefit  of  such  increase. 
This  is,  at  any  rate,  the  general  rule.  We  do  not  say  there  may  not 
possibly  be  an  exception  to  it,  where  the  property  may  have  increased 
so  enormously  in  value  as  to  render  a  rate  permitting  a  reasonable  re- 
turn upon  such  increased  value  unjust  to  the  public.  How  such  facts 
should  be  treated  is  not  a  question  now  before  us,  as  this  case  does  not 
present  it.  We  refer  to  the  matter  only  for  the  purpose  of  stating  that 
the  decision  herein  docs  not  prevent  an  inquirj^  into  the  question  when, 
if  ever,  it  should  be  necessarily  presented.' 

"  Commissioner  Lane,  of  the  Interstate  Commerce  Commission,  dis- 
cusses the  subject  in  his  opinion  in  the  'Western  Advanced  Rate  Case,' 
and  says  (20  I.  C.  C.  Rep.,  344,  decided  Feb.  22,  1911) : 

"  '  Whatever  the  true  economic  or  legal  view  may  be  as  to  the  right  of 
a  carrier  to  consider  the  increase  in  value  of  its  land  as  a  i)art  of  the  value 
upon  which  it  is  entitled  to  a  reasonable  return,  such  increase  in  value 
does  not  of  itself  establish  the  right  of  a  carrier  to  increase  rates  upon  a 
given  service.  Certainly  if  the  Supreme  Court  may  decline  to  lay 
down  the  al^solute  rule  that  "in  every  case  failure  to  produce  some 
profit  to  those  who  have  invested  their  money  in  the  building  of  a  road 
is  conclusive   that   the  tariff  is  unjust  and   unreasonable,"  Reagan  v. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         51 

Farmers'  Loan  &  Trust  Co.,  154  U.S.,  412,  it  is  a  conservative  state- 
ment of  the  law  to  hold  that  a  railroad  may  not  increase  the  rates  upon 
a  number  of  commodities  solch'  because  its  real  estate  has  risen  in  value.' 

"While  it  is  evident,  therefore,  that  each  case  must  be  decided  upon 
the  facts  peculiar  to  it,  the  Commission  believes  it  proper  in  this  case 
to  follow  the  general  rule,  as  stated  by  Judge  Hough  of  the  United 
States  Circuit  Court  {Consolidated  Gas  Co.  v.  City  of  New  York,  157 
Fed.  Rep.,  855) : 

"  'Upon  reason,  it  seems  clear  that  in  solving  this  equation  the  plus 
and  minus  quantities  should  be  equally  considered,  and  appreciation 
and  depreciation  treated  alike.  Nor  can  I  conceive  of  a  case  to  which 
this  procedure  is  more  appropriate  than  the  one  at  bar.' 

"  Thus,  land  has  been  taken  at  its  fair  value  and  not  at  its  original 
cost,  and  the  annual  appreciation  of  land  has  been  treated  as  a  profit. 
By  this  method,  all  property  is  treated  absolutely  alike,  as  Judge 
Hough  suggests.  No  difference  is  made,  except  that  as  depreciation 
represents  a  decrease  in  assets,  it  is  placed  as  a  debit  against  operation, 
while  appreciation  is  placed  as  credit  because  it  is  an  increase  in  assets. 
Land  has  sometimes  been  treated  like  other  property  only  to  a  degree ; 
that  is,  each  class  has  been  appraised  at  its  present  worth  or  value. 
That  has  been  done  in  this  case.  But  if  property  is  to  be  taken  at  its 
depreciated  value  where  it  has  depreciated,  an  entry  must  regularly 
be  made  in  estimated  operating  expenses  equal  to  the  average  annual 
depreciation.  Conversely,  if  land,  or  any  other  property  which  genuinely 
appreciates  in  value,  is  to  be  taken  at  its  appreciated  value,  then  an  en- 
try must  be  made  in  the  estimated  receipts  equal  to  the  average  annual 
appreciation.  Unless  this  is  done,  it  is  obvious  that  the  consumer  will 
be  burdened  with  all  the  estimated  decreases  in  assets,  but  not  credited 
with  the  increases  in  assets.  If  the  principle  laid  down  by  the  courts 
is  to  be  followed  in  part,  it  should  be  followed  in  whole. 

"  It  is  suggested  that  the  annual  increase  in  the  value  of  land  which 
is  treated  as  income  is  not  actually  received.  Increase  in  the  value 
of  unoccupied  land  is  not  realized  until  sold  or  put  into  use,  but  it 
is  real,  nevertheless,  although  payment  may  be  deferred.  Likewise, 
payments  to  the  depreciation  fund  are  not  actually  expended;  yet 
they  have  been  considered  legitimate  charges  in  practically  every  case. 
Furthermore,  the  annual  increment  is  no  more  indefinite  than  the 
total  increment  —  the  present  value.  But  if  the  present  value  can 
be  determined,  it  is  possible  to  determine  past  annual  appreciation 
with  positive  accuracy,  for  it  is  only  a  simple  mathematical  calcula- 
tion. It  is  also  probably  as  easy  to  estimate  increases  in  the  near  future 
as  it  is  to  estimate  what  obsolescence,  which  is  a  form  of  depreciation, 
there  will  be  in  the  future. 

"  Indeed,  the  problem  of  handling  appreciation  is  much  simpler  than 
depreciation.     If  the  property  is  growing  more  valuable,  the  investor 


52  ENGIXEERIXG  VALUATION 

need  not  worry;  and  if  the  state  recognizes  his  right  to  earn  a  fair 
return  upon  the  increase,  he  is  fully  protected.  It  is  not  necessary  that 
the  increase  be  represented  by  stocks  or  bonds,  for  if  the  earning  power 
is  there,  he  will  receive  a  return  thereon,  regardless  of  the  amount  of  se- 
curities. In  fact,  the  existence  of  an  increase  which  is  not  rei)resented 
by  securities  is  an  element  of  safety,  a  reserve  fund  of  a  valuable  kind. 

"  There  is  a  further  similarity.  The  exact  amount  of  depreciation  and 
the  annual  rate  are  not  definitely  known  until  the  piece  of  property  is 
actually  replaced  or  has  become  useless.  The  total  appreciation  and  the 
average  annual  rate  are  not  known  until  the  land  is  sold,  but  when  it 
has  been  disposed  of  (and  plants  are  continually  being  removed  and 
the  land  sold),  they  become  absolute  certainties.  Why  should  these 
matters  be  considered  less  definite  when  applied  to  land  than  when 
applied  to  the  buildings  thereon?  The  depreciation  of  the  buildings  is 
a  charge  against  operation;  why  should  not  the  appreciation  of  land 
be  a  credit?" 

Note  on  title  in  fee:  It  is  not  necessary  that  the  title  of  the  company  to 
aU  the  lands  upon  which  its  works  are  built  or  through  which  its  pipes 
are  laid  should  be  a  fee  simple,  perfect  in  every  particular  and  subject 
to  no  criticism.  An  irrevocable  license,  for  instance,  would  be  sufficient, 
or  a  title  based  upon  prescription.  If,  however,  there  should  be  found 
substantial  defects,  opportunitj^  should  be  given  the  company  to 
remedy  them ;  and  if  it  is  unable  to  do  so,  the  parts  of  the  property  so 
circumstanced  can  be  valued  and  the  purchase  price  abated  accordingly. 
It  would  be  expressing  too  narrow  a  view  to  say  that  an  appraisal  of 
a  great  system  of  waterworks  under  a  contract  of  purchase  must  fail 
because  the  title  to  a  small  part,  not  vital  to  the  integrity  of  the  system, 
was  afterwards  found  to  be  defective.  That  the  deed  tendered  bj'  the 
company  was  not  such  as  the  city  was  required  to  take  is  immaterial. 
It  is  sufficient  that  the  company  was  able,  ready  and  willing  to  do 
what  might  lawfully  be  required  of  it.  (Citj'^  of  Omaha  v.  Omaha 
Water  Company,  May  31,  1910.    159  U.S.  Circuit  Ct.  of  Appeals.) 

Forms  for  Use  in  the  Appraisal  of  Real  Estate.  —  I  am  show- 
ing on  the  following  i)ag('  tlio  headings  as  arranged  by  the 
Joint  Engineering  Department  of  the  Wisconsin  Commission. 

Appraisal  of  Buildings.  —  The  proper  appraisement  of  build- 
ing.s  is  best  accomplished  by  making  a  complete  bill  of  materials 
of  each,  and  then  applying  to  the  items  unit  prices  for  the  material 
and  labor  applicable  in  the  locality.  This  is  handled  most  satis- 
factorily by  an  architect,  builder  or  engineer  who  is  acquainted 
with  building  construction  in  the  particular  locality  under  consid- 
eration. 

Another,  and  one  of  the  most  common  ways,  is  to  apply  a  unit 


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54  ENGINEERING  VALUATION 

price  per  cubic  foot  of  contents,  and  one  must  have  a  wide  ac- 
quaintance with  various  types  of  l)uikhngs  because  the  price 
per  cubic  foot  varies  greatly  with  ckisses,  and  also  with  the  size. 
Even  with  buildings  in  the  same  class  and  type  the  price  per  cubic 
foot  will  be  found  to  vary  considerably. 

In  New  England  the  favorite  method  of  appraising  buildings, 
particularly  factory  buildings,  is  by  the  square  foot  of  floor  space. 
This  method  applies  particularly  to  textile  mills  and  to  warehouses, 
but  again,  one  must  have  a  wide  acquaintance  with  buildings 
of  these  two  types  to  accurately  value  them. 

In  measuring  buildings  for  computing  the  cubic  foot  value, 
the  dimensions  should  be  taken  from  outside  to  outside  of  all 
walls,  and  from  the  bottom  of  the  foundation  to  the  roof,  if  a 
flat  roof,  or  to  the  top  of  the  attic  walls  if  a  high  roof,  and  to  an 
average  height  of  a  peak  roof. 

In  measuring  for  value  according  to  the  New  England  or  floor 
surface  method  the  dimensions  should  l)e  taken  inside  of  pilas- 
ters. Some  engineers  include  the  area  of  the  basement  in  lieu 
of  that  of  the  roof,  others  use  the  dimensions  of  the  working  floors 
only,  omitting  the  basement  or  roof. 

On  the  Pacific  Coast  a  great  many  corrugated  iron  covered 
buildings  are  used,  and  a  favorite  and  perfectly  logical  method 
of  valuation  is  by  the  square  foot  of  surface,  including  roof  and 
sides,  and  adding  the  floor  at  a  proper  rate  for  the  cost  per  square 
foot.  The  Los  Angeles  aqueduct  built  dozens  of  these  corrugated 
iron  structures  and  found  the  average  cost  to  be  approximately 
12|  cents  per  square  foot  of  outside  surface. 

The  concrete  in  buildings  constructed  of  that  material  should  be 
reduced  to  cubic  feet,  and  a  price  per  cubic  foot  then  should  be 
applied.  If  the  roofs  are  of  steel,  that  material  can  be  calculated 
at  a  price  per  pound  erected,  applicable  for  the  locality.  Also 
the  steel  reenforcement  must  be  calculated  and  added  to  the  value 
of  the  concrete. 

Forms  for  Use  in  the  Appraisal  of  Buildings.  —  On  pages  55  and 
56  are  shown  two  forms,  one  as  devised  by  the  Joint  Engineering 
Department  of  the  Wisconsin  Commission,  and  another,  a  form  of 
summary  by  the  writer. 


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56 


ENGINEERING  VALUATION 


Form  of  Summary  for  Use  in  the  Appraisal  of  Buildings 


Reproduction         _               ,. 
Cost  New            Present  \  alue 

1.  Excavation 

2.  Material  in  foundation 

3.  Material  in  walls 

4.  Steel  frame 

5.  Roof 

6.  Steel  in  roof 

7.  Windows  and  doors 

8.  Interior  finish 

9.  Heating 

10.  Plumbing 

11.  Lighting 

12.  Painting 

13.  Miscellaneous 

14.  Total  of  items,  1-13 

15.  Add  percentage 

16.  Total  of  items,  14  and  15    .     .     .     . 

Railroad  Valuation.  —  In  suggesting  methods  of  evaluating 
railroads,  one  can  hardly  do  better  than  to  recommend  the  use  of 
a  form  of  summary  similar  to  that  proposed  by  W.  D.  Taylor, 
late  Engineer,  State  Board  of  Assessment  of  Wisconsin,  June, 
1903.  This  form  includes  "Cost  of  Reproduction"  ami  "  Present 
Value,"  with  all  percentages  for  overhead  charges  arranged  in 
their  proper  places.  In  this  summary  it  will  be  noticed  that 
"real  estate,"  item  No.  30,  is  included  among  the  first  items  to 
wliich  a  percentage  is  added.  This  is  a  point  to  which  one 
might  take  exception,  as  ordinarily  it  is  not  correct  to  add  a 
percentage  to  the  value  of  real  estate.  The  engineers  of  the 
Wisconsin  Commissions  admit  this,  luit  say  that  the  percentage 
would  hav'e  to  be  increased  should  the  real  estate  be  taken  from 
tliat  part  of  the  list.  Following  is  the  form  known  as  "  W.  B.  A. 
Form  101,"  and  after  that  will  be  found  a  description  of  the 
plan  as  devised  by  Mr.  Taylor.  Only  those  items  and  descrip- 
tions ))(Tl;iiuing  directly  to  the  subject  are  contained  in  this 
abstract. 


Konii  101 

JOINT   ENGINEERING   DEP'T 

WISCONSIN    TAX   AND   RAILROAD   COMMISSIONS 


Physical  Valuation  of  Railroads,  June  30 

Name  of  Eoad Compiled  by . 

Date 

Limits Checked  by  . 


FINAL   SUMMARY   SHEET 


Miles  1st  Main  Track. . 
Miles  2d  Main  Track  . . 
Miles  3d  Main  Track . . 
Miles  4th  Main  Track . . 
Miles  Joint  Main  Track  . . 
Total  Main  Track. 


Section  No 

Miles  Branch  Main  Track 

Miles  Branch  Joint  Track 

Total  Branch  Main  Track. 


Total  Miles  Crossovers.. 


Miles  Spurs  and  Sidings 

Joint  Spurs  and  Siding^s 

Joint  Spurs  and  Sidings 

Joint  Spurs  and  Sidings 

Total  Spurs  and  Sidings. 


SUBJECT 


Land  for  Right-of.Way,  Yards,  and  Terminals 

Real  Estate ". 

Grading 

Tunnels 

Bridges,  Trestles,  and  Culverts 

Ties 


Rails 

Frogs  and  Switches 

Track  Fastenings  and  Other  Material 

Ballast 

Track  Laying  and  Surfacing 

Roadway' Tools 

Fencing  and  Cattle  Guards 

Crossings  and  Signs 

Interlocking  and  Other  Signal  Apparatus. 

Telegraph  and  Telephone  Lines 

Station  Buildings  and  Fixtures 

General  Office  Buildings  and  Fixtures.... 
Shop,  Engine  Houses,  and  Turntables.. .. 

Shop  Machinery  and  Tools 

Water  Stations 

Fuel  Stations 

Grain  Elevators . . . 

Storage  Warehouses 

Dock  and  Wharf  Property 

Light  and  Power  Plants 

Power  Tran  sniission 

Miscellaneous  Structures 


Cost  of  Repro- 
duction 
Property  New 


Present 
Value 


TOTALS   1-29   INCLUSIVE 


Engineering,  Superintendence  &  Legal  Expenses,  Per  Cent  1-29  Incl. 


31. 
32. 
33. 
34. 


Cost  of  Reproduction 
Property  New 


Locomotives 

Passenger  Train  Cars .... 

Freight  Train  Cars 

Miscellaneous  Equipment 

TOTALS  31-34  INCLUSIVE 
Inspection  and  General  Ex|)enses Per  Cent  31-34  Incl. 


Present  Value 


TOTALS  1-35  INCLUSIVE 


Interest,  Organization,  Contingencies Per  Cent  1-35  Incl. 

Stores  and  Supplies  on  Hand  for  Use  in  Wisconsin 


GRAND   TOTALS 


TOTAL  PER  MILE  OF  MAIN    LINE. 


Size  of  sheet  8^"  X  14" 
57 


58  ENGINEERING  VALUATION 


Plan  Adopted  fou  Finding  the   Physical  Value  of  Wisconsin 

Railroads 

June  1903. 

"I.  Cost  of  Reproduction.  The  first  step  required  in  the  appraise- 
ment of  a  road  will  be  to  get  the  cost  of  reproduction  of  the  physical 
properties  of  the  road.  The  several  items  comprising  the  physical 
properties  of  the  usual  railway  are  enumerated  from  1  to  37  on  the 
sheet  shown  on  the  previous  page,  which  sheet  also  shows  certain 
fixed  percentages  to  cover  certain  items.  The  cost  of  reproduction 
is  assumed  to  be  what  it  would  cost  to  rejjroduce  the  road  at  the  aver- 
age prices  prevailing  for  the  period  of  five  years  ending  June  30  of 
the  year,  entirely  new  in  every  particular,  in,  say,  two  or  three  years' 
time,  if  the  entire  railroad  were  eliminated  —  its  right  of  way,  yards, 
stations  and  terminals  passed  into  other  hands  and  occupied  by  ju.st 
such  woodlands,  waste  lands,  farms,  industries  and  residences  as  those 
now  existing  in  and  on  the  adjoining  country  and  property. 

"II.  Present  Value  of  the  Physical  Properties.  The  second  step 
shall  be  to  obtain  the  present  value  of  the  physical  properties.  By 
the  present  value  of  a  road  is  meant  an  amount  which  equals  the  cost 
of  its  reproduction  minus  an  amount  covering  the  depreciation  in  value 
from  time,  wear,  etc.  Thus  the  cost  of  reproduction  and  the  present 
value  of  the  land  on  which  the  road's  right  of  waj''  and  terminals  are 
located  are  the  same,  but  the  cost  of  rcj^roduction  and  the  present 
value  of  steel  rails  are  likely  to  be  quite  different.  Thus,  if  the  market 
value  of  new  steel  rails  is  $28.00  per  ton,  and  the  scrap  value  $12.00  per 
ton,  the  wearing  value  is  $16.00  per  ton;  and  if  at  the  present  time 
40  per  cent  of  the  life  that  the  rail  can  be  used  in  the  road  has  been 
used  up,  the  rail  is  in  60  per  cent  condition,  and  its  present  value  per 
ton  would  be  S12.00  plus  60  per  cent  of  $16.00,  or  $21.60  per  ton. 

"In  the  determination  of  the  present  value  of  the  property  the  field 
notes  taken  on  making  this  appraisal  must  be  very  carefully  made, 
and  the  condition  of  each  item  of  property  must  be  recorded  in  the  field 
as  a  percentage  of  maximum  efficiency,  or  in  what  is  sometimes  called 
'The  value  in  per  cent  of  new.'  This  'condition  percentage'  should 
never  be  omitted  and  should  be  written  on  the  accompanying  blanks 
after  the  description  of  each  article  in  case  there  is  no  space  on  the 
blanks  for  its  insertion.  In  important  .structures,  such  as  a  steel  bridge 
or  roundhouse,  it  would  be  better  to  give  the  condition  percentage  of 
the  important  parts  of  the  structure.  Thus  the  masonry  of  the  bridge 
may  be  in  90  per  cent  condition  and  the  superstructure  in  60  per  cent 
condition. 

"III.  Determination  of  Land  Values.  In  finding  the  value,  for 
the  purpose  of  this  appraisal,  of  the  land  (exclusive  of  the  improve- 
ments constructed  by  the  railway  company)  for  the  right  of  way,  yards. 


1*^0RMS  FOR  USE  IN   MAKING  A  VALUATION         59 

station  grounds  and  terminals,  the  land  shall  be  divided  into  the 
following  classes : 

"Class  1.  Barren  lands. 

"  Class  2.  Farming  lands. 

"  Class  3.  Land  in  villages  of  less  than  500  people. 

"  Class  4.  Land  in  cities  and  villages'of  between  500  and  3000  people. 

"Class  5.  Land  in  cities  and  villages  of  between  3000  and  10,000 
people. 

"  Class  6.  Land  in  cities  of  over  10,000  people. 

"Barren  lands  are  lands  nearly  or  quite  worthless  for  crops,  hay  or 
grazing. 

"In  this  appraisal  the  value  of  the  land  for  other  purposes  must  be 
determined  by  getting  as  accurately  as  is  reasonably  possible  the 
average  value  at  the  various  county  seats  as  shown  by  the  records 
of  the  transfers  of  property  for  the  five-year  period  ending  June  30,  — 
in  the  section  traversed  by  the  road ;  and  by  consultation  with  dis- 
interested, local,  reliable  real  estate  and  business  men,  bank  cashiers, 
etc. 

"  The  Right-of-Way  Value.  The  term  right-of-way  is  intended  to  in- 
clude the  land  for  stations,  yards  and  terminals. 

"Two  distinct  results  should  be  obtained,  namely,  first,  the  market 
value  per  acre  of  the  land  for  other  purposes,  and,  second,  the  value 
per  acre  as  right  of  way.  The  first  is  to  be  obtained  in  the  manner 
explained  above.  The  second  should  be  obtained  by  taking  the  average 
market  price  for  other  purposes  of  the  land  actually  within  the  right 
of  way  and  by  adding  thereto  the  damages  to  the  adjoining  property 
forming  a  part  of  the  same  parcel  which  are  directly  attributable  to  the 
proper  construction  and  operation  of  the  railroad  across  that  portion 
of  the  land  taken."  ^ 

The  inquiry  will  be  first,  what  is  the  fair  average  price  per  acre  for  ordi- 
nary purposes  of  the  land  taken  ?  and,  second,  how  much  is  the  deprecia- 
tion in  the  salable  value  of  the  residue  of  the  parcel,  lot  or  tract  with  the 
building  thereon  from  which  the  right  of  way  is  severed  ?  The  sum  of 
the  two  items,  first,  the  market  price  of  the  land  taken,  and,  second, 
depreciation  in  the  salable  market  value  of  the  residue,  will  constitute 
the  right-of-way  value. 

"  The  right-of-way  value  per  acre  may  be  ascertained  and  determined 
by  agreement  between  the  agents  of  the  railway  company  and  the 
owner,  on  the  above  basis,  at  the  five-year  average  market  price  per  acre 

1  For  railroad  right-of-way  the  value  of  city  property  as  determined  by  all  the 
methods  is  multiplied  by  a  factor  of  1.5,  and  the  value  of  real  estate  in  the  country 
districts  by  2.5.  The  records  of  more  recent  purchases  for  the  past  three  years  (Oct. 
1,  1911)  show  that  the  factor  2.5  for  country  lands  should  be  more  nearly  3. 


60  ENGINEERING  VALUATION 

for  the  land  within  the  ri^ht-of-way,  plus  the  depreciation  in  the  market 
value  of  the  residue  not  taken,  the  ])arties  knowing  that  the  land  is  to 
be  used  for  railway  purposes  and  being  disposed  to  agree  upon  a  fair, 
reasonable  and  just  sum  as  the  price  of  the  land  and  the  damage  to  the 
land  of  which  the  right-of-way  was  a  part. 

"  In  determining  the  value  of  land  for  other  purposes  within  the  right- 
of-way,  sufh  value  will  be  ascertained  by  taking  the  market  value  of  the 
bare  land  without  including  the  value  of  buildings.  To  this  value  of 
the  right-of-way  will  be  added  the  depreciation  of  the  market  value 
of  the  residue  from  which  it  is  taken,  and  this  will  include  the  depre- 
ciation not  onlj'  to  the  land  itself,  but  to  any  buildings  that  may  be 
upon  such  land. 

"IV.  Grades  and  Curves  not  considered  in  the  Valuation.  In  tliis 
appraisement  no  attempt  will  be  made  to  take  into  account  the 
economic  value  of  grades  and  curves  or  the  absence  of  them ;  that  is, 
each  road  will  be  appraised  just  as  if  it  were  a  straight  line  and  as  if 
its  grade  line  were  level  throughout. 

"  V.  Industrial  Tracks.  In  this  appraisement  the  roadbed  and 
tracks,  grading,  bridges,  culverts,  etc.,  of  all  'industrial  tracks'  operated 
by  a  railway  company  shall  be  scheduled  as  the  property  of  the  railway 
company  except  where  it  can  show  that  such  property  does  not  belong 
to  the  company ;  but  the  right  of  way  and  the  adjacent  buildings  shall 
not  be  so  scheduled  unless  the  railway  owns  them  outright. 

"VI.  Apportionment  of  Rolling  Stock  of  Interstate  Roads.  The 
amount  of  the  rolling  stock  and  miscellaneous  equipment  to  be 
credited  to  the  State  of  Wisconsin  will  be  found  bj^  finding  first  the 
number  of  all  the  different  classes  of  locomotive,  passenger  and  freight 
cars,  and  miscellaneous  equipment  of  the  wiiole  sj^stem;  then  the 
number  of  each  class  of  Wisconsin  locomotive,  passenger  cars  and 
freight  cars  shall  be  apjwrtioned  in  the  same  ratio  as  the  annual  loco- 
motive, passenger  car  and  freight  car  mileage  of  the  whole  system  in 
Wisconsin  bears  respectively  to  the  total  annual  locomotive,  passenger 
car  and  freight  car  mileage  of  the  whole  system  in  all  states.  The 
actual  value  of  special  equii)ment  exclusively  u.sed  in  Wisconsin  is  to 
be  specifically  ascertained ;  but  such  equipment  as  wrecking  outfits, 
steam  shovels,  etc.,  which  is  to  be  used  both  in  and  without  the  State, 
shall  be  prorated  according  to  the  same  ratio  above  described  for 
rolling  stock  or  in  the  ratio  of  the  time  in  use  within  the  State  to  the 
whole  time  in  use  within  and  without  the  State. 

"  If  in  any  case  for  any  reason  the  mileage  record  cannot  be  ascertained 
on  which  to  base  this  calculation,  the  apportionment  for  rolling  stock 
shall  be  prorated  in  the  same  ratio  as  the  total  length  of  track  in  Wis- 
consin —  including  main  line,  branches,  .second  track,  spurs  and  sidings, 
—  bears  to  the  total  length  of  track  of  the  entire  system. 

"In  arri\-ing  at  the  '])ercciit:i':;e  condition'  of  rolling  .stock  on  large 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         01 

interstate  roads,  there  sluill  be  indiscrimiruitely  inspected  at  convenient 
points  or  terminals  witliin  or  contiguous  to  the  State  50  per  cent  of 
each  class  of  tlic  road's  locomotives  and  50  per  cent  of  each  class  of 
the  road's  passenger  service  cars  in  actual  use,  wholly  or  partly,  in 
Wisconsin,  and  the  average  percentage  condition  so  obtained  sliall  be 
taken  to  represent  the  condition  of  the  w^holc  class  of  cars  or  locomotives. 

"The  'percentage  condition'  of  each  class  of  freight  cars  shall  be  es- 
tablished similarly  by  actual  inspection  of  not  less  than  20  per  cent  of 
as  many  cars  of  each  class  of  the  road's  cars  as  the  company's  books 
show  should  be  apportioned  to  Wisconsin  under  the  above  rule  of 
apportionment.  In  the  inspection  of  freight  cars  the  inspectors  should 
work  in  pairs,  and  in  order  to  identify  cars  that  have  already  been  in- 
spected, the  inspectors  should  carry  hammers  with  which  they  can  im- 
print with  a  blow  the  initials  '  W.  B.  A.'  on  the  needle  beam  of  the  car. 
As  large  a  proportion  as  possible  of  the  rolling  stock  of  the  smaller 
roads  operating  entirely  within  the  State  should  be  inspected.  No 
attempt  should  be  made  to  determine  in  the  field  the  actual  value 
of  rolling  stock,  but  the  actual  value  for  each  class  should  be  deter- 
mined from  the  records  of  the  usual  actual  purchases  or  by  reliable 
information  secured  from  reputable  manufacturing  concerns  as  to  the 
market  value. 

"  The  form  shown  on  page  57  will  be  used  for  summing  up  the  values 
for  all  of  a  division  of  a  road  within  the  State ;  and  for  summing  up 
the  values  of  all  of  a  whole  system  within  the  State,  including  the 
rolling  stock,  etc." 

Forms  for  Use  in  a  Railroad  Appraisal.  —  Following  will  be 
found  copies  of  the  headings  and  spaces  devised  by  the  Joint 
Engineering  Department  of  the  Wisconsin  Commission.  Forms 
for  use  in  appraisal  of  land  and  buildings  will  be  found  under 
the  headings  of  those  subjects.  It  will  be  noticed  that  the  forms 
for  track  may  be  used  equally  as  well  for  street  railways,  as  may 
be  some  of  the  other  forms. 

Revised  Valuation  Forms  for  Steam  Railroads.  —  The  accom- 
panying blank  forms  are  supplied  to  the  steam  roads  of 
the  state  for  use  in  reporting  annual  revisions  of  inventory  of 
the  physical  property,  including  all  cases  of  new  construction. 
The  forms  used  in  the  1903  Wisconsin  appraisals  and  for  sev- 
eral years  thereafter  were  similar  to  those  employed  in  the  Michi- 
gan railroad  appraisal  of  1900.  In  undertaking  to  revise  these 
forms  two  principal  objects  were  in  view:  (1)  To  obtain  from 
the  railroad  companies  more  complete  detailed  information  as 
to  physical  conditions  and  actual  costs ;    (2)  To  make  the  group- 


62  ENGINEERING  VALUATION 

ing  of  inventor}'  more  consistent  with  the  classification  of  accounts 
for  steam  roads  prescribed  by  the  Interstate  Commerce  Commis- 
sion, in  the  hope  that  eventually  there  may  be  substantially  uniform 
practice  in  the  valuation  methods  followed  in  the  different  states. 
Acknowledgment  is  made  of  valuable  criticisms  and  sugges- 
tions submitted  by  representatives  of  the  various  roads  and  others 
in  working  out  the  details  of  these  forms. 


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JOINT  ENCIKEERJNC  DEPT 

WISCONSIN  TAX  AND  RAILROAD  COMMISSIONS 


ViltuUon  of  June  30.. 


ORE  DOCKS 


Kamc  aod  Number. 


Name  of  Builder 


APPROACH— LePEth 


Helgbt— BegiD 


Total  LIo.  Pt 


Cost  Per  FL  In  Place 


Total  Ft  B.   M 


Coat  Per  M.  Id  Place 


Total  Wt.  In  Llia. 


Coost  Per  Lb.  in  Place 


DOCK  PROPER— Length 


"Width  of  DccV 


Helgbt  Water  to  Deck 


Pockets — Number 


Capacity  la  Tons 


Chutes— Kind 


Cost  Each  Installed 


Total  Lin    Ft. 


Cost  Per  Ft.  In  Place 


Total  Ft    B.  M. 


Cost  Per  M.  Id  Place 


Total  Wt-  In  Lbs. 


Cost  Per  Lb.  la  Place 


Dredging  and  FllllDg 


Total  Cu.  Yds. 


Cost  per  Cu-  Yd. 


TOTAL  COST  OF  DOCK  AND  APPROACH 


Cond.  Per  Cent 


I  A^a>  MACHINERy  GENERAL  LIST  AND  DESCRIPTION 


BITILDINCS    (List  each  acparaUlr) 


Raal  Dlm«n«Ioa«  FouodaUaa 


Size  of  sheet  8J"  X  14" 
76 


Num*  of  Read „ 


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JOINT  ENGINEERING  DEPT 

WISCONSIN  TAX  AND  RAILROAD  COMMISSIONS 


ValuatioD  of  June  30  . 


DOCK  &  WHARF  PROPERTY     •"- 


Designation  (Local  name) 


Name  of  Ballder 


No.  of  Feet  of  Water  FYontage 


No.  of  8q.  Ft  Doch. 


Total  llD.  ft 


Co«t  per  lip,  ft  In  Place. 


Total  Ft.  B-  M. 


Cost  M  Ft  B.  M.  Id  Place. 


Total  Cu-  Ydfl. 


Unit  Cost  in  Placa. 


Kind  of  Material 


Tbta]  Cu.  YdB. 


Cost  per  Cu.  Yd. 


KtDd  of  MateHal 


Total  Cu.  Yds. 


Coat  per  Co-  Yfl. 


Elevating  or  Handling  Machinery 


Year  Installed 


Total  Cost  Installed 


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E^X;IXEERIXG   VALUATION 


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FORM  37 
JOINT  ENGINEERING  DEPT 

WISCONSIN  TAX  AND  RAILROAD  COMMISSIONS 

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Opinions  and  Court  Decisions  on  Railroad  Valuation.  — There  are 
numerous  decisions  of  the  courts  on  railroad  valuation,  some  of 
which  have  been  used  in  this  book  in  the  general  discussion  of 
values;  others,  considered  most  important,  follow. 

Professor  H.  C.  Adams,  statistician  of  the  Interstate  Commerce 
Commission,  suggests  some  limitations  and  restrictions  to  the  term 
"value"  in  Bulletin  No.  21  of  the  "Bureau  of  Census,"  as  follows  : 

"The  valuation  submitted  in  this  report  may  be  properly  defined 
as  the  commercial  value  of  property  used  by  railways  in  connection 
with  the  business  of  transportation.  By  'commercial  value'  is  meant 
the  estimate  placed  upon  the  worth  of  property  regarded  as  a  business 
proposition.  This  must,  of  course,  be  the  market  estimate  and  not  the 
arbitrary  estimate  of  a  public  official.  The  two  fundamental  consider- 
ations by  which  the  market  is  influenced  in  placing  a  value  upon 
I)roperty  when  bought  or  sold  are  the  expectation  of  income  arising 
from  the  use  of  the  property,  and  the  strategic  significance  of  the 
property.  These  two  considerations  are  made  the  basis  of  the  valua- 
tion of  railway  property  submitted  in  this  report.  The  material  made 
use  of  in  this  valuation  is,  first,  the  operating  and  financial  accounts  of 
the  railways;  second,  intorrailway  contracts  and  agreements ;  and,  tliird, 
the  published  records  of  the  stock  market." 

San  Diego  Land  and  Town  Co.  v.  City  of  National  City, 
19  Sup.  Ct.  810. 
"After  observing  that  this  broad  proposition  involved  a  misconception 
of  the  relations  between  the  public  and  a  railroad  corporation,  that 
such  a  corporation  was  created  for  public  purposes,  and  performed 


FORMS   FOR  USE  IN  MAKING   A  VALUATION         83 

a  function  of  the  State,  and  that  its  right  to  exercise  the  power  of 
eminent  domain,  and  to  charge  tolls,  was  given  primarily  for  the 
benefit  of  the  public,  this  court  said :  '  It  cannot,  therefore,  bo  ad- 
mitted that  a  railroad  corporation  maintaining  a  highway  under  the 
authority  of  the  State  may  fix  its  rates  with  a  view  solely  to  its  own 
interests,  and  ignore  the  rights  of  the  public.  But  the  rights  of  the 
public  would  be  ignored  if  rates  for  the  transportation  of  persons  or 
property  on  a  railroad  are  exacted  without  reference  to  the  fair  value 
of  the  property  used  for  the  public,  or  the  fair  value  of  the  services 
rendered,  but  in  order  simply  that  the  corporation  may  meet  operating 
expenses,  pay  the  interest  on  its  obligations,  and  declare  a  dividend 
to  stockholders.  If  a  railroad  corporation  has  bonded  its  property  for 
an  amount  that  exceeds  its  fair  value,  or  if  its  capitalization  is  largely 
fictitious,  it  may  not  impose  upon  the  public  the  burden  of  such  in- 
creased rates  as  may  be  required  for  the  purpose  of  realizing  profits 
upon  such  excessive  valuation  or  fictitious  capitalization ;  and  the 
apparent  value  of  the  property  and  franchises  used  by  the  corpora- 
tion, as  represented  by  its  stocks,  bonds,  and  obligations,  is  not  alone 
to  be  considered  when  determining  the  rates  that  may  reasonably  be 
charged.'  "     (169  U.  S.  544,  18  Sup.  Ct.  433.) 

"The  true  value  of  a  line  of  railroad  is  something  more  than  an  aggre- 
gation of  the  values  of  the  separate  parts  of  it,  operated  separately.  It 
is  the  aggregate  of  those  values  plus  that  arising  from  a  connected 
operation  of  the  whole,  and  each  part  of  the  road  contributes  not 
merely  the  value  arising  from  its  independent  operation,  but  its  mileage 
proportion  of  that  flowing  from  a  continuous  and  connected  operation 
of  the  whole.  .  .  .  The  value  of  the  property  results  from  the  use  to 
which  it  is  put,  and  varies  with  the  profitableness  of  that  use,  past, 
present  and  prospective,  actual  and  anticipated.  There  is  no  pecuniary 
value  outside  that  which  results  from  such  use. 

"In  the  nature  of  things  it  is  practically  impossible,  at  least  in  respect 
to  railroad  property,  to  divide  its  value  and  determine  how  much  is 
caused  by  one  use  to  which  it  is  put  and  how  much  by  another.  Take 
the  case  before  us,  it  is  impossible  to  disintegrate  the  value  of  that 
portion  of  the  road  within  the  State  of  Indiana  and  determine  how  much 
of  that  value  springs  from  its  use  in  doing  interstate  business  and  how 
much  from  its  use  in  doing  business  wholly  within  the  State.  An 
attempt  to  do  so  would  be  entering  upon  a  mere  field  of  uncertainty 
and  speculation."     (154  U.  S.  Sup.  Ct.  444.) 

"  It  was  also  said  that  'the  basis  of  all  calculation  as  to  the  reasonable- 
ness of  rates  to  be  charged  by  a  corporation  maintaining  a  highway 
under  legislative  sanction  must  be  the  fair  value  of  the  property  used 
by  it  for  the  convenience  of  the  public.  And,  in  order  to  ascertain  that 
value,  the  original  cost  of  construction,  the  amount  expended  in  per- 
manent improvements,  the  amount  and  market  value  of  its  bonds  and 


84  ENGINEERING  VALUATION 

stock,  the  present  as  compared  with  the  original  cost  of  construction, 
the  probable  earning  capacity  of  the  property  under  particular  rates 
prescribed  by  statute,  and  the  sum  required  to  meet  operating  expenses, 
are  all  matters  for  consideration,  and  are  to  be  given  such  weight  as 
ma}'  be  just  and  right  in  each  case.  We  do  not  say  that  there  may  not 
be  other  matters  to  be  regarded  in  estimating  the  value  of  the  property. 
What  the  company  is  en,titled  to  ask  is  a  fair  return  ui)on  the  value  of 
that  which  it  employs  for  the  public  convenience.  On  the  other 
hand,  what  the  public  is  entitled  to  demand  is  that  no  more  be  exacted 
from  it  for  the  use  of  a  public  highway  than  the  services  rendered  by  it 
are  reasonably  worth.'  "     (169  U.  S.  546,  18  Sup.  Ct.  434.) 

Valuation  of  Street  Railways.  —  Although  there  are  a  few 
horse  railways  still  in  existence,  particularly  in  New  York 
City,  no  forms  will  be  given  here  for  a  summary  of  their  value, 
as  they  are  almost  completely  out  of  date  and  long  since 
have  been  superseded  by  electrically  operated  roads.  As  the 
forms  of  report  for  street  railways  differ  somewhat  in  that 
of  the  Interstate  Commerce  Commission,  the  Massachusetts 
Railroad  Commission,  and  the  New  York  Public  Service  Com- 
mission, and,  as  the  summary  for  an  appraisal  is  not  neces- 
sarily like  that  for  construction  accounts  as  carried  on  the  com- 
pany's books,  it  is  as  well  to  adopt  a  summary  that  is  short,  defi- 
nite and  complete.  Such  a  summary  is  shown  on  the  next  page. 
Attention  is  called  to  the  arrangement.  All  items  subject  to  a 
percentage  increase  for  Engineering,  Contingencies,  etc.,  are 
grouped  together  under  the  numbers  1  to  7.  They  are  thus  sum- 
marized and  the  percentage  for  engineering  and  contingencies 
that  has  been  assumed  is  applied  to  the  total.  The  items  11-12, 
13-14,  being  purchased  constantly  in  the  course  of  business, 
should  carry  no  percentage  on  their  amounts.  Item  No.  15  — 
"Paving"  —  is  ahvays  a  doubtful  charge,  sometimes  having  ])een 
laid  by  the  city  and  again  by  the  company.  It  is  always  a  matter 
for  discussion  as  to  whether  "Paving"  belongs  to  the  company 
or  to  the  city.  At  least,  it  should  have  no  percentage  charged 
to  it,  and  it  is  therefore  placed  in  the  summary  with  the  other 
items  which  carry  no  percentage.  Land  is  another  item  against 
which  there  is  no  percentage  charge.  Commissions  for  its  pur- 
chase are  invariably  charged  to  the  seller,  and  not  to  the  buyer. 
Any  preliminary  expenses  going  toward  looking  it  up,  etc.,  must 
be  chargeable  in  the  promotion  or  intangible  values.  Following 
is  the  form. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION 


85 


Form  of  Summary  for  Use  in  the  Appraisal  of  Electric  Railway 


Cost  of  Re- 
production 
New 

PllESENT 

Value 

1.  Roadbed  and  Track 

2.  Electrical  distribution 

3.  Buildings  and  structures 

4.  Power  plant  equipment 

5.  Shop  equipment 

6.  Rolling  stock  and  equipment 

7.  Miscellaneous 

8.  Total  of  items  1  to  7 

9.  Add  percentage 

10.  Total  of  items,  8  and  9 . 

11.  Office  furniture  and  fixtures 

12.  Tools  and  equipment 

13.  Horses,  wagon  and  harness 

14.  Stores  and  supphes 

15.  Paving 

16.  Land 

17.  Total  of  items  11  to  16       

Grand  total  value,  items  10  and  17       ... 

Many  of  the  forms  shown  in  connection  with  the  chapter  on 
Railroad  Valuations  can  be  used  for  Street  Railway  Appraisal  as 
well.  Forms  for  use  with  evaluation  of  buildings,  power  plant, 
etc.,  will  be  found  in  other  chapters. 

Information  Required  in  the  Valuation  of  a  Street  Railway  Prop- 
erty. —  Much  of  the  information  required  for  the  appraisal  of 
a  street  railway  property  can  be  collected  on  forms  similar  to 
those  used  in  the  appraisal  of  railroads,  but  in  order  that  a 
proper  arrangement  may  be  effected  and  that  all  items  may 
be  included,  the  following  list  is  suggested.  It  is  one  that 
has  been  used  by  the  writer  in  some  extensive  work  and  shoukl 
include  practically  all  items  upon  which  information  is  re- 
quired. 

Track : 

Mileage  of  main  track,  second  track,  third  track,  special  work 
and  sidings.  List  by  divisions,  list  by  streets,  alphabeti- 
cally arranged. 

Length  of  each  type  of  rail  or  track  and  location  of  same. 


86  ENGINEERING  VALUATION 

Details  of  joints. 

Drawings  of  types  of  rails. 

Drawings  of  bridges  and  changes  in  same. 

Drawings  of  types  of  construction. 

Culverts ;  drawings  of  same,  and  cost. 

Right  of  way. 

Track  signals ;  drawings  of  layout. 

Sewers  and  catch  basins ;  drawings  of  same. 

Special  Work: 

Drawings  of  layouts  in  each  case. 
Schedule  of  each  class  of. 
Cost  sheet  of  each. 

Ties  : 
Size,  kind  of  wood ;  metal ;  set  in  concrete  or  other  material. 
Distance  apart. 
Kind  and  depth. 
Ballast ;  kind  and  depth. 

Paving  : 

List  of  different  styles,  and  type  and  location  of  same. 
Cost  sheet  of  each  style  and  type,  showing  foundation,  etc. 
Paving  in  and  about  Special  Work. 

Track  Bonding : 
What  number  and  size,  and  style  of  bond  at  each  joint. 
Style  and  cost  of  l^onds  around  special  work. 
Cross  bonding,  size  and  distance  apart. 

Overhead  Trolley: 

Length  and  size  of  trolley  wire,  and  how  suspended. 

Number  and  style  of  poles  and  whether  of  wood  or  iron;  Guy 

poles  and  stubs. 
Painting  of  poles ;  number  of  coats. 
List  of  all  fastenings  on  poles,  span  wires,  etc. 
List  of  all  overhead  switches,  crossings,  etc. 
List  of  span  wire,  giving  length  and  size. 
Cost  of  erection. 
Side  bracket  construction  ;  number  of  brackets,  stj^le. 

Poirrr  Houses: 
(Buildings.) 
(Land.) 
Chimneys. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION 


87 


Economizers. 

Boilers. 

Pumps,  feed. 

Piping  of  all  kinds. 

Heaters. 

Coal  and  ash  handling  machinery. 

Engines. 

Condensers ;  circulating  and  air  pumps. 

Generators. 

Boosters. 

Switchboards  complete. 

Connections  between  generators,  etc.,  and  switchboards. 

Copper  from  switchboard  to  outside  line  of  building. 

Battery  Stations : 

(Land  and  building  placed.) 

Battery,  number  and  size,  and  make  of  cells  complete. 

Booster. 

Switchboards. 

Tools  and  miscellaneous. 


Repair  Shops  : 

(Land  and  building  placed.) 


Machine  shop 
Blacksmith  shop 
Carpenter  shop 
Pattern  shop 
Truck  shop 
Paint  shop 


Glazing  shop 
Winding  shop 
Upholstering  shop 
Cabinet  shop 
Gear  store 
Store  room 


Feeders : 

Length  of  each  feeder,  giving  size. 

Number  of  insulators,  etc.,  type  and  size. 

Cross  arms ;  type,  number  of  pins,  size. 

Equalizers,  with  their  switchboards. 

Return  feeders ;  material,  insulated  or  not. 

Lead-covered  cables ;  length,  size. 

Cable  ;  concrete  covering,  including  ditch,  etc. 

Conduit  : 

Map  of,  showing  length  between  manholes. 
Number  and  size  of  ducts  and  depth. 


Tin  shop 
Lumber  yard 
Casting  yard 
Scrap  yard 
Wheel  shop 
Offices 


88  ENGINEERING  VALUATION 

Tj'pe  of  conduit. 

Number  and  size  of  manholes;  whether  brick  or  concrete. 
Number  and  size  of  pole  connections  from  manholes. 
Cable  supports  in  manholes;  number,  size  and  style. 

Car  Barns  : 

.     (Land  and  buildings  placed.) 

Track  in  barn  and  outside  of  same,  in  yard. 

Special  work. 

Pits. 

Air  compressor  and  storage. 

Equalizer  board. 

Inside  lighting. 

Outside  lighting. 

Overhead  trolley. 

Overhead  switches  and  special  work. 

Feeders  to  barn  and  track. 

Snow  plows,  boards. 

Rolling  Stock: 

Revenue  Cars  — 

Photo  of  each  type ;  floor  plan  of  each  type. 

Type  ;  size  and  number  of  each,  number  on  each. 

Trucks  ;  number  of  each,  make  and  size. 

Wheels  cast  iron  ;  diameter  and  weight. 

Wheels  steel ;  diameter  and  weight  of. 

Electric  motors  ;  make,  style,  size,  gears  and  ratio  of  same. 

Controllers ;   make,  type  and  number  of  each. 

Other  electrical  equipments;    including  circuit  breakers,  light- 
ing and  head  light. 

Signs  and  lamps. 

Air  equipment  for  brakes. 
Construction  Cars  — 

Photo  of  each  type ;  floor  plan  of  each  type. 

Number  ;  size,  type,  number  of  each. 

Trucks,  make  and  num])or  of  each. 

Electric  motors;   make,  style,  size  and  number  of  gears  and 
ratio. 

Controllers ;  make,  type,  and  number  of  each. 

Other  electrical  equipment. 

Air  oqnipmont  for  brakes. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         89 

In  studying  the  history  of  a  street  railway  property,  it  is  likely 
to  be  discovered  that  it  consists  of  two  or  more  merged  properties, 
records  of  the  early  cost  of  which  will  be  lacking  in  one  or  more 
of  the  separate  members  of  the  system. 

In  order  that  all  the  members  may  be  included  in  the  valuation 
of  both  tangible  and  intangible  properties,  it  is  common  to  lay  out 
a  schedule  of  items,  and  the  following  list,  taken  from  a  paper 
entitled  "Valuation  of  Tangible  and  Intangible  Property,"  by 
Frank  R.  Ford  in  the  Annals  of  the  American  Academy  of  Politi- 
cal and  Social  Science,  for  January,  1911,  has  been  carefully 
worked  up  by  him  in  connection  with  the  appraisal  of  properties 
in  New  York  City.  The  only  fault,  if  any,  that  might  be  found 
with  the  list  is  that  it  is  a  little  too  carefully  worked  out,  and  as 
the  author  says  "  it  may  be  questioned  whether  a  number  of  the 
above  items  should  appear  in  the  capitalization  of  the  enterprise. 
In  many  cases  they  have  been  charged  against  early  income  or 
later  profit  and  loss."  This  list  simply  shows  about  all  the  items 
that  may  be  looked  for  in  a  valuation  of  a  street  railway. 

Tangible  Property 

"The  physical,  or  tangible,  property  includes  land,  construction, 
equipment  and  cash,  or  its  equivalent.  If  these  items  are  being 
valued  on  the  basis  of  either  the  original  cost  or  the  cost  of  repro- 
duction, they  should  include  the  cost  of  acquiring  land,  the  cost  of 
super\asion  and  administration  of  the  construction  by  the  general 
contractor,  the  subcontractors,  the  engineers  and  the  company's 
executive  organization.  In  other  words,  all  labor  and  expense  going 
to  make  up  the  construction  of  the  finished  whole  should  be  included, 
whether  this  labor  be  that  of  day  laborers,  foremen,  superintendents, 
contractors,  engineers  or  officers  and  employees  of  the  company.  The 
expenses  of  such  contruction  work  should  also  include  all  contingent 
expenses  in  connection  with  such  labor,  together  with  such  items  as 
interest  and  taxes  during  construction,  and  other  overhead  charges. 
In  some  cases  the  cost  of  acquiring  land,  the  administration  of  con- 
struction work  by  the  company's  organization,  the  general  contractor's 
services,  engineering  expenses  and  interest  and  taxes  during  construction 
have  been  considered  as  intangible  property,  this  distinction  being  due, 
presumably,  to  the  fact  that  in  estimates  of  cost  of  reconstruction 
these  items  have  been  arrived  at  by  the  use  of  round  percentages. 
Such  labor  and  expense,  however,  are  essential  features  of  the  cost  of 
construction  and  equipment,  and  consequently  belong,  strictly  speaking, 
to  the  tangible  property.  Stock,  tools,  supplies  and  working  capital, 
in  whatever  form  it  exists,  are  also  part  of  the  tangible  property. 


90  ENGINEERING  VALUATION 

A  list  of  the  principal  items  which  enter  into  the  cost  of  production  of 
the  tangible,  or  physical,  property  comprises  the  following : 

Work  and  Expense  Items  Forming  the  Tangible  Property  of  a  Street 

Railway 

I.   Companj^'s  overhead  charges  upon  construction. 

1.  Executive  organization's  work  and  expenses,  including : 

a.   Accounting  expenses. 
h.  Office  expenses. 

c.  Storeroom  and  stable  expenses. 

d.  Permits  of  authorities  and  city  inspection. 

2.  Legal  work  and  expenses. 

3.  Technical  work  and  expenses. 

a.  Company's  engineering  organization. 
6.   Consulting  engineers. 

c.  Architects. 

d.  Testing  and  outside  inspection. 

4.  Interest  during  construction. 

5.  Taxes  during  construction. 

6.  Wear  and  tear  during  construction. 

II.   Land,  including  private  right  of  way  and  sites  for  power  houses, 
car  barns,  shops,  terminals,  etc. 

1.  Assessed  value. 

2.  Additional  market  value  for  ordinary  purposes. 

3.  Additional  value  for  railroad  purposes,  including : 

a.  Plottage. 

b.  Contiguity  factor. 

c.  Special  value  for  railroad  purposes  due  to  location. 

4.  Overhead  charges  for  acquisition  of  land,  such  as : 

a.  Brokerage. 

b.  Legal  work  and  expenses. 

c.  Technical  work  and  expenses. 

d.  Title  insurance. 

e.  Loss  on  portion  of  site  not  necessary. 
/.  Loss  of  buildings  discarded. 

III.   General  contractor's  overhead  charges  and  profits. 

1.  Work  and  expenses  of  contractor's  general  organization 

and  office. 

2.  General  suiK'rintendence,  watching  and  lights. 

3.  Fire,  accident  and  liability  insurance  during  construction. 

4.  Maintenance  and  use  of  tools. 

5.  General  contractor's  profits. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         91 

IV.   Material  and  labor,  comprising  the  physical  construction  ami 
equipment,  as  furnished  by  the  subcontractors. 

1.  Inventory,  prices  on  basis  of  subcontracts. 

2.  Extras,  incidentals  and  contingencies. 

V.   Stock,  tools  and  supplies. 

1.  Inventory,  priced. 

2.  Incidentals. 

VI.   Working  capital,  including : 

1.  Cash  on  hand. 

2.  Accounts  and  bills  receivable. 

3.  Prepaid  accounts. 

4.  Land  and  buildings  not  used  in  operation. 

Intangible  Property 

All  of  the  remainder  of  the  corporation's  property  should  be  considered 
as  intangible  property. 

From  the  standpoint  of  value,  the  intangible  property  represents 
the  total  value  of  the  company  from  a  business  standpoint,  less  the 
value  of  its  physical  property.  From  a  standpoint  of  cost,  either  rst 
cost  or  cost  of  reproduction,  the  intangible  property  represents  the 
cost  of  acquiring  rights  and  capital  for  producing  the  tangible  jiroperty 
and  for  placing  the  company  in  a  potential  position  for  doing  business 
efficiently  as  a  going  concern. 

Intangible  Property  from  the  Standpoint  of  Cost 
From  the  standpoint  of  cost  of  production  through  the  period  of 
development,  the  intangible  property  will  include  many,  or  all,  of  the 
following  items : 

Work  and  Expense  Items  through  the  Period  of  Development  Forming  the 
Intangible  Property  of  a  Street  Railway 

I.   Promotion  of  the  enterprise. 

1.  Work  and  expenses  of  promoter's  organization. 

2.  Preliminary  legal  work  and  expenses. 

3.  Preliminary  technical  work  and  expenses. 

a.  Survey  and  location  of  line. 

b.  Estimates  of  construction  cost  and  of  income  and 

expenses. 

c.  Preparation  of  prospectus. 

4.  Profits  of  promotion. 

II.   Corporate  organization. 

1.   Legal  work  and  expenses. 
a.   Incorporation. 


92  ENGINEERING  VALUATION 

b.  Details  of  perfecting  legal  organization. 

c.  Form  of  securities. 

d.  Mortgages. 

2.  Executive  organization's  work  and  expenses. 

a.  Directors',  officers'  and  employees'  work  and  ex- 

penses (until  commencement  of  construction) . 

b.  Office  and  general  expenses  (until  commencement 

of  construction). 

c.  Engraving  securities. 

d.  Registration  and  certification  of  securities. 

III.   Franchises  and  consents  (often  under  conditions  of  competition). 

1.  Property  owners'  options  and  consents  (for  location  and 

for  change  of  motive  power). 
a.   Executive  organization's  work  and  expenses. 
6.   Legal  work  and  expenses  (vacations  of  injunctions, 
etc.). 

c.  Technical  work  and  expenses  (surveys,  maps,  etc.). 

d.  PajTnents  for  consents. 

2.  Franchises  and   consents  of  municipal   authorities    (in- 

cluding municipal  legislature,  mayor,  borough  presi- 
dents, commissioners  of  bridges,  parks,  docks, 
highways,  water  supply,  sewers,  etc.). 

a.  Executive  organization's  work  and  expenses. 

b.  Legal  work  and  expenses. 

c.  Technical  work  and  expenses. 

d.  Paj^ments  for  franchises. 

A.  Lump  sum. 

B.  Capital  expenditures  under  governmental  re- 

quirements for  property,  the  title  of  which 
does  not  vest  in  the  company,  such  as: 

1.  Grading  and  widening  streets. 

2.  Removing   subsurface    street   obstruc- 

tions. 

3.  Paving. 

4.  Track  and  overhead  line  constructed  on 

municipal  projierty,  such  as  parks 
and  bridges. 

5.  Change  of  location    of  tract   or  line, 

due  to  governmental  requirements. 
3.   Consent  of  state  utilities  commission. 

a.  Executive   organization's   work  and    expenses    of 

presenting  jjroject. 

b.  Legal  work  and  expenses. 

c.  Technical  work  and  expenses. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         93 

4.   Trackage,  pole  and  other  agreements  with  other  public 
utility  corporations. 

a.  Executive  organization's  work  and  expenses. 

b.  Legal  work  and  expenses. 

c.  Technical  work  and  expenses. 

IV.  Development  of  technical  standards. 

1.  Past  supersession  and  obsolescence,  caused  by: 

a.  Changes  in  the  art,  and  experiments,  such  as : 

A.  Stagecoaches. 

B.  Horse-car  system. 

C.  Cable  system. 

D.  Storage  battery  system. 

E.  Compressed  air  system. 

F.  Underground  contact  systems. 

G.  Gasoline  motor  system. 

6.   Improvements  in  the  art,  such  as : 

A.  Large   double-truck   cars  in   place  of  small 

single-truck  cars. 

B.  Introduction    of     prepayment    and    safety 

devices  on  cars. 

C.  Improved  electric  motors. 

D.  Improvement    of    grade  and  alignment   of 

track. 

E.  Standardization  of  gauge. 

F.  Replacement  of  single  track  with  double  track. 

G.  Heavier  rails  of  improved  design. 
H.   Improved  paving  and  foundation. 

I.   Steel  instead  of  wooden  poles. 

J.   Placing  electrical  conductors  underground. 
K.   Fireproofing  barns,  shops  and  power  houses. 

L.  Replacing  small  belted  and  direct-connected 
engine  units  with  large  steam  turbines 
and  other  power-house  improvements. 
M.  Alternating-current  distribution,  permitting 
power  development  from  one  large  plant, 
in  place  of  direct-current  distribution 
from  several  small  plants. 

2.  Piecemeal  construction. 

3.  Extra  cost  of  construction,  due  to  non-interference  with 

operation. 

4.  Solidification  of  roadbed. 

5.  Adaptation  of  construction  and  equipment. 

V.  Development  of  company's  business. 

1.   Losses  of  early  operation. 


94  ENGINEERING  VALUATION 

2.  Losses  of  outlying  sections  of  line. 

3.  Perfection  of  executive  organization  and  business  methods. 

4.  Development  of  park  amusement  enterprises. 

VI.  Consolidation  with  and  control  of  other  corporations. 

1.  Corporate  consolidation. 

a.  Executive  organization's  work  and  expenses. 

b.  Legal  work  and  expenses. 

c.  Pajonents  to  state  or  city. 

d.  Payments  for  securities. 

e.  Tangible  or  intangible  property  of  merged  corpora- 

tion which  is  superseded  by  consolidation. 

2.  Leases  of  other  corporations. 

a.  Executive  organization's  work  and  ex-penses. 

b.  Legal  work  and  expenses. 

c.  PajTiients  to  state  or  city. 

3.  Investments  in  securities  of  other  corporations. 

VII.  Financing. 

1.  Work  and  expenses  of  promoter  and  associates  in  negotiation 

and  underwTiting. 

a.  Preliminary  promotion  syndicate  or  association. 

b.  Stock  underwriting  syjidicate. 

c.  Bond  underwriting  syndicate. 

2.  Sale  of  securities. 

o.  Permission  for  issue  from  state,  state  commission  or 
municipal  authorities. 

A.  Executive  organization's  work  and  expenses. 

B.  Legal  work  and  expenses. 

C.  Technical  work  and  expenses. 

b.  Financial  negotiations. 

A.  Executive  organization's  work  and  expenses. 

B.  Legal  work  and  expenses. 

C.  Technical  woi-k  and  expenses. 

c.  Payments   of   commissions  to   bankers  and  brokers, 

representing  their  work,  expenses  and  profits. 

d.  Discounts  on  securities. 

VIII.  Patents  and  licenses. 

L  Development  of  inventions. 
2.  Purchase  of  patents  or  licenses. 

IX.   Interest  on  work  and  expense  items  of  intangible  property  until 
commencement  of  operation." 

Valuation  of  a  Power  Plant  with  Forms.  —  A  power  plant  is  in- 
cluded with  both  street  railways  and  electric  lighting,  but  being 


FORMS  FOR  USE  IN  MAKING  A  VALUATION         95 

a  very  important  item,  is  considered  here  as  a  separate  subject. 
Buildings  and  land  are  treated  under  separate  headings  elsewhere, 
leaving  only  the  operating  plant  itself  to  be  covered. 

The  copies  of  the  following  named  forms  will  be  found  on  pages 
96  to  105  inclusive.  These  forms  are  the  ones  which  have  been 
devised  by  the  Joint  Engineering  Department  of  the  Wisconsin 
Commission,  and  they  have  been  well  worked  out  and  improved 
from  time  to  time,  but  must  be  taken  as  tentative  only  and  subject 
to  additional  improvements  at  any  time. 

Power  Plant  Equipment,  Field  Inventory: 
Boilers. 

Boiler  feed  and  auxiliaries. 
Engines  and  condensers. 
Generators,  motors,  etc. 
Switchboards. 
Storage  batteries. 
Transformers. 

Miscellaneous  electrical  apparatus. 
Miscellaneous. 
Detailed  summary. 

The  footnote  on  the  first  form  refers  to  a  table  of  "  condition 
per  cent,"  which  will  be  found  under  the  subject  of  depreciation, 
where  the  whole  matter  is  described. 

The  form  for  use  in  assembling  the  total  value  of  a  steam  power 
plant  will  be  found  on  page  106.  The  items  for  this  summary  can 
be  taken  from  the  preceding  forms. 


96 


ENGINEERING  VALUATION 


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FORMS  FOR  USE  IN  MAKING  A  VALUATION 


00 


Form  otS-A 
JOINT  ENGINEERING  DEPARTMENT 

WISCONSIN    TAX    AND    RAILROAD 
COMMISSIONS 

Power  Plant  Inventory 

Generators,  Motors,  Etc. 

Company 

Including  Generators,  Motors,  Motor-Generators,  Frequency-Changers,  Turbo-Generators, 
Rotary  Convertors,  Boosters,  Brush  Arc  Machines  and  Miscellaneous  Dynamos 


SHEET  NO 

Inspected  by Date.  . 

Unit  Cost  Placed  by Date. . 

Compiled  by Date_. 

Checked  by Date. . 


Name  of  Plant City 

Name  of  Article 

Number  of  Articles 

Name  of  Maker 

Date  Installed Age. 

Name  Plate  Data 


,  Frequency .  .  .  . ,  Phase .  .  .  . ,  Voltage . 


Number  of  Poles ,  RPM .  . . 

Belted  or  Direct  Connected  to . 

Shunt,  Series,  or  Compound  Wound 

Classification  of  Service 

Station  Designation  Number 

Location  in  Plant 

In  Operating  Condition  ? Operated  ?. 

Maintained  Good,  Fair  or  Poor 

Previous  History,  if  any 

Additional  Information : 


.Size  of  sheet,  8h"  X  11". 


COST  AND  PRESENT  VALUE 


Am't  Cost  New  f.  o.  b.  factory 
Freight 

$ 

$ 

Unit  Scrap 

I 

Unit  Wearing  Value 

$ 1 

Remarks: 


Life  years 

Total  Wearing  Value 

Condition  % 

Total  Residual  Wearing  Val. 

Tulal  Scrap  Value 

Total  Present  Value 

Total  Cost  New  in  Place.  . . 


APPORTIONMENT 


To 

Per  Cent 

Total 

Cost  New 

Present 
Value 

S 

S 

Total 

'S « 1 

100 


ENGINEERING  VALUATION 


Form  552-A 
JOINT  ENGINEERING  DEPARTMENT 

WISCONSIN    TAX    AND    RAILROAD 
COMMISSIONS 

Power  Plant  Inventory 

Switchboards 

Company 


SHEET  NO.. 


Inspected  by Date_ 

Unit  Cost  Placed  by Date. 

Compiled  by Date_ 

Checked  by Date. 


Including  Instruments,  Hand  Switches,  Hand  and  Remote  Control  Oil  Switches,  Relays, 
Circuit  Breakers,  and  other  Similar  Accessory  Apparatus  and  Construction 


Name  of  Plant City 

Name  of  Article Station  Dositrnation  No 

Number  of  Articles Location  in  Plant    

Name  of  Maker   Operated  ? 

Date  Installed Age In  Operatinp;  Condition 

Name  Plate  Data Maintained  Good,  Fair  or  Poor 

Classification  of  Service Previous  History  if  any 


SUMMART 


SKETCH  OF  PANEL 


Size  of  sheet  8i"X  11' 


COST  AND  PRESENT  VALUE 


Am't  Cost  New  f.  o.  b.  factory 

Freight 

Installation  and  Cartage 
Unit  Scrap 

Copper lb  Oii .  .  .  . 

Iron lb  ((I) .  .  .  . 

Unit  Wearing  Value 


Life  years 

Total  WeaririK  Value 

("onililion  '  ,' 

Tntnl  IJpsidual  Wearing  Val, 

T(jt;il  Srrap  Value 

Total  rrescnt  Value 

Total  Cost  New  in  Place.  . . 


$..., 


APPORTIONMENT 


Remarks: 


To 

Per  Cent 

Total 

Cost  New 

Present 
Value 

$ 

$ 

Total 

i 

* 

FORMS  FOR  USE  IN  MAKING  A  VALUATION        101 


r.-.o-A 

JOINT   ENGINEERING   DEPARTMENT 

WISCONSIN    TAX    AND    RAILROAD 
COMMISSIONS 

Power  Plant  Inventory 

Storage  Batteries 

Company 

Including  Large  Batteries  used  in  conjunction  with  Generators,  and  small  ones  used  for  Oil 

Switches 


SHEET  NO 

Inspected  by Date_  _ 

Unit  Cost  Placed  by Date. 

Compiled  by Date 

Checked  by Date 


Name  of  Plant City . 

Name  of  Battery 

Number  of  Batteries 

Name  of  Maker 

Date   Installed Age 

Name  Plate  Data 


X 


Classification  of  Service 

Station  Designation  No 

Location  in  Plant 

In  Operating  Condition  ? Operated? oo 

Maintained  Good,  Fair  or  Poor "S 

Number  of  Cells ^ 

Type  of  Cell <=g 

Glass  or  Wooden  Cell a.  

Capacity  in  Ampere-hours  (8  hr.  Rate)  S 

Kind  of  System  on  which  Battery  operates 

Previous  History,  if  any 

For  method  of  Mounting  Cell,  see  Field  Book  No page. 

For  End  Cell  Switches  and  Further  Information,  see  Field  Book  No .  . . 
page . 


COST  AND  PRESENT  VALUE 


Am't  Cost  New  f.  o.  b.  factory 

Freight 

Installation  and  Cartage 
Unit  Scrap 

Copper lb  @  .  .  .  . 

Iron lb  &}■■■■ 

Unit  Wearing  Value 


Remarks: 


Life  years 

Total  Wearing  Value 

Condition  % 

Total  Residual  Wearing  Val. 

Total  Scrap  Value 

Total  Present  Value 

Total  Cost  New  in  Place.  . . 


APPORTIONMENT 


To 

Per  Cent 

Total 

Cost  New 

Present 
Value 

$ 

$ 

Total 

S   

$ 

102 


EXGIXEERING  VALUATION 


551 -A 
JOINT  ENGINEERING  DEPARTMENT 

WISCONSIN    TAX    AND    RAILROAD 
COMMISSIONS 

Power  Plant  Inventory 

Transformers 


SHEET  NO. 


Inspected  by Date_ . 

Unit  Cost  Placed  by  _  _  .Date.  _ 

Compiled  by Date_ . 

Checked  by Date. . 

Company 

Including  Arc  Lighting,  Transformers,  Lighting  Transformers  in  the  Power  Station,  High 
Tension  Transformers,  AC  Feeder  Regulators,  etc. 


Name  of  Plant City 

Name  of  Article 

Number  of  Articles 

Name  of  Maker 

Date  Installed Age . 

Name  Plate  Data 


Classification  of  Service 

Location  in  Plant 

Operated  ? 

In  Operating  Condition?   

Maintained  Good,  Fair  or  Poor. 

Method  of  Cooling 

Additional  Information 


.Size  of  sheet  Sr'X  11" 


Am't  Cost  New  f.  o.  b.  factory 

Freight 

Installation  and  Cartage 
Unit  Scrap 

Copper lb  (c^  . . 

Iron lb  @  .  , 

Unit  Wearing  Value 


COST  AND  PRESENT  VALUE 
$ 


REHyutES : 


Life  years 

Total  Wearing  Value 

Condition  % 

Total  Residual  Wearing  Val. 

Total  Scrap  Value 

Total  Present  Value 

Total  Cost  New  in  Place. . . 


APPORTIONMENT 


To 

Per  Cent 

T0T.\L 

Cost  New 

Present 
Value 

S 

s 

Total 

« 8 1 

FORMS  FOR  USE  IN  MAKING  A  VALUATION        lO:^ 


510-A 
JOINT  ENGINEERING  DEPARTMENT 

WISCONSIN    TAX    AND    RAILROAD 
COMMISSIONS 

Power  Plant  Inventory 

Miscellaneous  Elec.  Apparatus 

Company 


SHEET  NO.. 


Inspected  by Date. 

Unit  Cost  Placed  by Date. 

Compiled  by Date_ 

Checked  by Date. 


Including  Machine  Leads,  Conduits,  Lighting  Systems,  Wiring  for  Cranes,  Bus  Bars, 
Bus  Bar  Fixtures,  etc. 


Name  of  Plant City . 

Name  of  Article 

Number  of  Articles 

Name  of  Maker 

Date  Installed Age . 

Name  Plate  Data 

Classification  of  Service  

Location  in  Plant 

Operated  ? 

In  Operating  C  ndition  ? 

Maintained  Good,  Fair  or  Poor 

Additional  Data 


.  Size  of  sheet  81"  X  11' 


COST  AND  PRESENT  VALUE 


Am't  Cost  New  f.  o.  b.  factory 

$ 

$ 

Unit  Scrap 

Iron tb  @  .  .  .  . 

Unit  Wearing  Value 

$ 1 

REMAnKs: 


Life  years 

Total  Wearing  Value 

Condition  % 

Total  Residual  Wearing  VaL 

Total  Scrap  Value 

Total  Present  N'alue 

Total  Cost  New  in  Place.  .  . 


APPORTIONMENT 


To 

Per  Cent 

Total 

Cost  New 

Present 
Value 

$ 

$ 

Total 

$ 

S 

104 


ENGINEERING  VALUATION 


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FORMS   FOR  USE  IN   MAKING   A  VALUATION        lO.j 


Form  5G7 
JOINT  ENGINEERING  DEPARTMENT 

WISCONSIN   TAX   AND    RAILROAD 
COMMISSIONS 

Detailed  Summary 

OF 

Power   Station   Equipment 

Company 

Station 


SHEET  NO 

Compiled  by Date 

Cliecked  by Date 

Date  of  Valuation 


Equipment —  Itemized 


Size  of  sheet  8h"  X  11" 


Cost  New 
IN  Place 


Scrap 
Value 


Condi- 
tion 

% 


Present 
Value 


106 


ENGINEERING  VALUATION 


Form  for  Use  in  Summarizing  the  Valuation  of  a  Steam  Power 

Station 


Items 


1.  Building 

2.  Cranes 

3.  Stacks      

4.  Brcechings  from  stacks  to  boilers      .... 

5.  Boilers,  complete,  including  stokers  .... 

6.  Coal-  and  ash-handling  machinery    .... 

7.  Forced  draft  apparatus  and  ducts    .... 

8.  Pumps,  tanks,  etc 

9.  Piping,  complete 

10.  Main  engines  and  condensers 

11.  Exciter  engines 

12.  Generators 

13.  Exciters 

14.  Switchboards  and  wiring  to  machines  .     .     . 

15.  Power  house,  tools  and  machinery    .     .     .     . 

16.  Miscellaneous 

17.  Total  of  items  Nos.  1  to  16 

18.  Add  percentage  to  cover  engineering,   and 

supervision,  interest  during  construction, 
employers'  and  public  liability,  contin- 
gencies, etc 

19.  Total  of  items  Nos.  17  and  18 


Cost  to 
Reproduce 

New 


Present 
Value 


Appraisal  of  a  Water  Power  Privilege,  either  Undeveloped  or 
Abandoned.  ^  If  a  water  power  privilege  is  undeveloped,  its  value 
will  depend  upon  : 

(A)  Its  location,  geographical,  as  regards  facilities  for  construc- 
tion, and  for  transmission,  the  quantity  of  water  and  regularity 
of  flow,  total  head,  need  of  water  for  purposes  other  than  for 
power. 

(B)  The  use  to  which  the  power  can  be  put,  whether  for  operat- 
ing electrochemical  plants  requiring  power  for  24  hours  per  tlay  — 
seven  days  per  week ;  for  textile  mills  or  other  factories  requiring 
power  for  10  hours  steadily ;  for  electric  railwaj's  or  electric 
lighting,  each  requiring  power  for  most  of  the  hours  daily,  but  with 


FORMS  FOR  USE  IN  MAKING  A  VALUATION       107 

a  variable  load,  or  a  steady  load  for  some  hours ;  or  for  pumping 
for  irrigation. 

(C)  The  condition  of  the  market,  which  may  be  near  l)y  and 
ready  to  serve,  or  may  be  distant  and  the  business  may  have  to 
be  worked  up ;  the  steadiness  and  reliability  of  such  business. 

The  determination  of  the  value  of  an  undeveloped  water  power 
privilege  should  be  made  by  comparison  with  the  cost  of  produc- 
ing and  operating,  a  similar  amount  of  power  in  similar  territory 
for  the  same  purpose  for  which  it  is  proposed  to  use  the  new 
power.  If  the  privilege  will  permit  of  the  development  of  a  large 
amount  of  power,  then  the  estimates  of  cost  and  operation  must 
be  based  upon  the  best  and  most  economical  and  efficient  types  of 
apparatus ;  dams  and  buildings  being  of  the  most  permanent 
nature,  and  the  motor  power  apparatus  of  the  most  efficient  type 
of  the  time.  The  steam  or  other  plant  with  which  it  is  to  be 
compared  should  be  of  the  latest  type  of  steam  turbine  construction 
with  the  most  efficient  and  economical  boilers  that  can  be  installed. 
If,  however,  the  water  power  privilege  is  of  medium  or  small 
capacity,  then  it  is  best  to  make  the  comparison  with  plants  of 
average  efficiency  and  economy  for  the  place  when  installed  or  for 
places  equally  convenient  for  the  transaction  of  business. 

Charles  T.  Main,  M.E.,  of  Boston,  gives  the  following  steps 
as  proper  to  be  followed  in  appraising  an  undeveloped  water  power 
privilege :  ^ 

"  (1)   Determine  the  flow,  including  the  effect  of  storage  and  pondage. 

"  (2)   Determine  the  net  head. 

"  (3)  Determine  the  horse-power  which  can  be  economically  de- 
veloped and  used  each  month  in  an  average  year. 

"(4)  Determine  the  minimum  flow  and  power,  and  from  this  the  size 
of  supplementary  steam  plant  required  if  the  power  is  to  be  developed 
above  the  minimum  flow. 

"  (5)   Determine  the  shortage  of  water  power  during  such  months 
as  there  is  a  deficiency. 
'  "  (6)   Estimate  the  probable  cost  of  development  of  the  water  power. 

"  (7)  Estimate  the  probable  cost  of  the  supplementary  plant,  using 
steam,  gas,  oil,  or  anything  which  is  best  for  the  location  under  con- 
sideration. 

"  (8)  Estimate  the  yearly  cost  of  running  the  water  power  and  sup- 
plementary plants,  including  the  fixed  charges  on  l^oth,  to  produce  a 
combined  power  suitable  for  the  purpose  for  which  the  power  is  to  be 
used. 

1  Paper  before  New  England  Water  Works  Asso.,  Sept.  12,  1907. 


108  ENGINEERING  VALUATION 

"  (9)  Estimate  the  cost  of  a  steam  or  other  kind  of  plant,  necessary 
to  produce  the  power  required. 

"  (10)  Estimate  the  yearlj^  cost  of  running  this  plant,  including 
fixed  charges,  to  produce  the  power  requii-cd. 

"  (11)  Subtract  the  cost  of  producing  the  jjowerby  water  power  and 
the  supplementary  plant  from  the  cost  of  producing  it  by  steam  power, 
or  some  other  method,  alone.  The  difference,  if  positive,  gives  the 
apparent  yearly  saving  by  the  use  of  water  power.  The  apparent  saving 
should  be  modified  if  necessary  for  location  or  any  other  thing  affect- 
ing the  value. 

"  (12)  Capitalize  this  difference  at  a  rate  which  seems  proper,  and 
the  result  is  the  value  of  the  privilege." 

Of  course  there  is  much  difference  of  opinion  as  to  the  rate  at 
which  this  difference  should  be  capitalized,  as  there  are  many  rates 
involved,  including  that  of  the  ever  decreasing  cost  of  producing 
power  by  steam  and  other  methods.  There  are  also  possibilities 
of  damages  by  freshets,  rates  of  changes  in  business,  etc.,  which 
would  make  it  unsafe  to  capitalize  at  a  rate  less  than  10  per 
cent. 

Appraisal  of  Damages  to  a  Developed  Water  Power.  —  The 
value  of  a  water  powder  which  is  developed  naturally  includes 
the  present  or  depreciated  value  of  the  plant.  This  is  true  up 
to  the  point  where  the  annual  cost  of  water  power,  including 
fixed  charges,  equals  or  exceeds  the  annual  cost  of  steam  or  other 
power  with  the  fixed  charges  included.  When  the  annual  cost  of 
water  power  exceeds  that  of  steam  or  other  powers,  the  value  of 
the  water  power  will  be  only  the  cost  new  of  a  plant,  which  would 
make  the  total  cost  of  the  water  power,  including  fixed  charges, 
equal  to  the  cost  of  steam  or  other  po\ver,  less  depreciation. 

The  damage  to  a  water  power  by  diversion  of  part  or  all  of  the 
supply  of  water  is  defined  as  "the  difference  in  value  of  the  entire 
property  before  and  after  the  diversion." 

The  damage  to  a  water  power  where  a  diversion  is  made  of  a 
part  or  all  of  the  water  is  represented  by  the  increased  cost  of 
operation  capitalized,  and  as  such  diversion  is  ordinarily  made 
against  the  wishes  of  the  owner,  the  damage  should  be  an  amount 
which  will  reimburse  him  for  the  total  loss,  or,  say,  the  annual 
damage  should  be  capitalized  at  5  or  6  per  cent. 

The  damage  to  a  privilege  which  produces  a  variable  amount 
of  power,  but  which  is  not  equipped  with  a  supplementary  plant, 
will  be  the  same  as  if  it  w^ere  so  equipped  and  should  be  so  calculated. 


FORMS   FOR  USE  IN   MAKING   A   VALUATION        109 

When  the  water  power  conditions  are  such  as  to  require  a  steam 
phmt  of  sufficient  capacity  to  produce  the  whole  power  for  a  part 
of  the  year,  the  damages  will  be  the  capitalization  of  the  increased 
cost  of  operation  due  to  the  increased  length  of  time  tiie  steam 
plant  may  be  run. 

Charles  T.  Main  gives  the  following  points  to  be  determined 
in  calculating  the  damages  due  to  a  diversion  of  part  of  the  water 
from  a  developed  privilege  : 

(1)  Determine  the  flow,  including  the  effect  of  storage  and  jioiidago, 
before  and  after  the  diversion. 

(2)  Determine  the  net  head. 

(3)  Determine  the  horse  power  which  can  be  economically  developed 
and  used  before  and  after  diversion. 

(4)  The  difference  between  the  power  used  before  and  after  diversion 
is  the  power  diverted  which  causes  damage. 

(5)  Estimate  the  additional  yearly  cost  of  running  caused  by  the 
taking  away  of  this  power,  of  coal,  attendance,  and  supphes. 

(6)  If  any  permanent  power  has  been  taken,  that  is,  i)ower  which 
can  be  reUed  upon  in  the  lowest  flow  of  the  steam,  estimate  the  cost  of  a 
steam  plant  or  portion  of  plant  necessary  to  make  good  the  amount 
taken  in  the  dry  month. 

(7)  Estimate  the  fixed  charges  on  this  cost  of  additional  supi)le- 
mentary  plant. 

(8)  Add  the  extra  cost  of  running  and  additional  fixed  charges,  and 
the  sum  represents  the  extra  yearly  expense. 

(9)  This  extra  expense  capitalized  at  a  proper  rate  represents  tiic 
damage. 

Valuing  an  Hydroelectric  Property.  —  A  difference  will  be  found 
in  the  value  of  hydraulic  or  water  power  properties  between 
those  located  in  the  east  and  those  in  the  west.  In  the  east,  they 
are  more  or  less  accessible,  of  low  head  and  large  quantities  of 
water;  in  the  west,  largely  in  most  inaccessible  places,  of  high 
head  and  comparatively  small  quantities  of  water.  In  most 
cases,  though,  the  list  or  form  of  summary  accompanying  this 
will  be  found  to  cover  both  districts  quite  fully. 

In  the  extreme  west  it  is  found  necessary  to  make  very  con- 
siderable explorations,  long  surveys  and  many  measurements  of 
water  flow,  and  in  order  to  get  the  minimum  flow  such  measure- 
ments should  be  made  late  in  the  fall  just  previous  to  the  annual 
rains. 

While  in  the  east  the  item  roads  and  trails  is  hardly  worth 
separation  as  an  item  of  expense,  yet  in  the  far  west  the  difficulties 


no  ENGINEERING  VALUATION 

and  cost  are  very  great,  oftentimes  roads  of  forty  or  fifty  miles 
througli  momitainous  country  have  to  be  constructed  in  order  to 
reach  the  site  of  the  dam,  the  locations  along  tunnels  and  flumes, 
and  the  power  house  site,  not  onlj^  with  mere  tools  but  with  all 
supplies.  In  addition,  the  commissary  department  is  very  im- 
portant and  needs  early  and  constant  attention,  especially  is 
this  the  case  as  winter  comes  on  in  the  mountains  and  a  party  is 
liable  to  be  snowed  in  for  several  days. 

Again,  while  in  the  east  penstocks  reaching  from  the  fore  bay 
to  the  wheels  are  of  short  length  and  large  in  diameter  and  may 
often  be  constructed  directly  in  and  of  concrete,  in  the  far  west 
these  take  the  shape  of  pipe  lines,  from  100  feet  to  3000  feet  in 
length,  under  a  head  of  100  feet  to  2000  feet,  and  are  necessarily 
constructed  of  heavy  steel,  well  anchored  and  covered. 

The  item  headworks  and  reservoirs  includes  all  dams,  mill  ponds 
or  reservoirs,  headgates,  and  in  fact  the  cost  of  everything  up  to 
the  entrance  of  the  canal  or  flume  taking  the  water  away  from 
the  reservoir. 

Canals,  tunnels,  flumes,  and  fore  bay  include  all  that  part  of  the 
works  for  conveying  the  water  from  the  reservoir  to  the  pen- 
stocks. In  the  east  items  of  "canal"  and  "fore  bay"  would 
nearly  always  cover  all  the  cost  of  this  work,  but  in  the  far  west 
it  is  not  unusual  to  encounter  miles  of  tunnels,  miles  of  wooden 
or  concrete  flumes,  miles  of  wood  stave  pipe,  between  the  head 
works  of  a  development  and  the  fore  bay  at  the  head  of  the 
penstocks. 

The  item  water  wheels  and  governors  should  cover  all  hydraulic 
appliances  between  the  end  of  the  penstock  and  the  armature  of 
the  electric  generator,  the  shaft,  common  to  both,  being  valued 
as  a  part  of  the  water  wheel. 

Electric  generators  and  ylant  include  all  electrical  apparatus 
from,  but  not  including,  the  armature  shaft  to  and  including 
the  switchboards,  transformers  and  to  the  first  fastening  of  cables 
and  wires  outside  the  building.  Electric  wiring  for  lights  in  the 
building  belongs  to  the  cost  of  the  building  as  does  any  wiring  for 
power  used  in  ventilating  the  building. 

As  in  the  majority  of  cases  the  electric  energy  developed  by 
a  water  power  is  transmitted  to  some  distance,  the  item  high 
tension  transmission  system  is  meant  to  cover  every  part  of  the 
high  tension  construction  l)uilt  for  the  purpose  of  conveying  the 
current  from  the  power  house  to  the  center  of  distribution  where 


FORMS  FOR  USE  IN  MAKING  A  VALUATION        111 

it  is  reduced  in  pressure.  This  necessarily  includes  all  sub- 
stations along  the  lines  of  the  transmission,  and  all  such  sub- 
stations as  may  receive  the  high  tension  current  and  transform 
it  into  current  of  a  lower  pressure.  Where  the  transmitted 
current  is  taken  direct  to  a  central  point,  reduced  to  a  lower 
pressure  and  then  retransmitted  to  substations  and  again  re- 
duced to  a  still  lower  pressure  for  local  distribution  the  classi- 
fication of  the  high  tension  transmission  system  ends  at  the  first 
or  central  point,  all  the  rest  coming  under  the  head  of  distribu- 
tion system. 

Form  of  Summary  for  Appraisal  of  Hydroelectric  Plant 


Items 

Cost  to 
Reproduce 

New 

Present 
Value 

1.   Roads  and  trails 

2.  Headworks  and  reservoirs 

3.  Canals,  tunnels,  flumes  and  fore  bay     .     .     . 

4.  Penstocks  and  high  pressure  piping       .     .     . 

5.  Water  wheels  and  governors 

6.  Electric  generators  and  plant       

7.  Buildings  and  structures 

8.  High  tension  transmission  system     .... 

9.  Distribution  system 

10.   Miscellaneous 

11.  Total  of  items  1  to  10 

12.  Add  percentage  ^ 

13.  Total  of  items  11  and  12 

14.  Connections  to  customers 

15.  Office  furniture  and  fixtures 

16.  Tools  and  implements 

17.  Horses,  wagons  and  harness 

18.  Stores  and  supplies 

19.  Paving                         

20.   Land  and  all  rights  of  way 

21.  Total  of  items  14  to  20 

Total  of  items  13  and  21 

*  This  percentage  is  to  cover  engineering,  supervision,  interest  during  construc- 
tion, employers'  and  public  liabilitJ^  contingencies,  etc. 


112  ENGINEERING  VALUATION 

Referring  to  the  preceding  form  of  summary  for  the  appraisal 
of  Hydroelectric  property,  the  percentage  for  engineering  and 
contingencies  is  added  to  the  sum  of  the  first  ten  items,  the  re- 
maining items  needing  no  addition,  as  they  are  ordinarily  pur- 
chased in  the  regular  course  of  current  business.  The  item 
connections  to  customers  is  included  in  all  valuations  for  the  rea- 
son that  the  courts  have  so  ordered.  It  is  a  question  if  they 
should  be  put  into  capital  account,  and  if  so,  should  be  amortized 
at  a  heavy  rate,  this  rate  being  determined  by  the  estimated 
average  permanency  of  the  connections.  Underground  services 
are  constructed  from  main  to  curb  at  the  expense  of  the  company, 
and  of  course  remain  the  property  of  the  company.  It  is  only  the 
balance  of  the  connection,  that  upon  the  property  of  the  customer, 
that  may  be  in  question. 

Detail  forms  for  use  in  the  appraisal  of  a  water  power  property 
are  rather  difficult  to  devise  beforehand,  as  almost  every  case  is 
unique ;  but  for  dams,  tunnels,  canals,  flumes,  etc.,  the  following 
list  of  items  may  be  of  assistance : 

Dam: 

Total  length. 

Total  height. 

Length  of  spillway. 

Height  of  spillway. 

Cubic  yards  of  excavation. 

Cubic  yards  of  material  of  construction. 

Headworks : 
Dimensions. 

Cubic  yards  of  excavation. 
Cubic  yards  of  material  of  construction. 
Number  of  headgates. 
Dimensions  of  headgates. 
Dimensions  of  racks. 
Machinery  for  operating  headgates. 

Tunnels  : 
Dimensions. 

Cubic  yards  of  material  through  which  cut. 
Cubic  yards  of  lining,  if  concrete. 
Quantity  of  other  materials  for  lining. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION       113 

Flumes : 

Dimensions. 

Cubic  yards  excavation. 

Cubic  yards  masonry. 

Cubic  yards  concrete. 

Wood,  dimensions  of  and  quantity. 

B.  M.  quantities  of  timber  in  flume. 

B.  M.  quantities  of  timber  in  trestles. 

Siphons : 

Cubic  yards  excavation. 

Earth. 

Rock. 
Steel  pipe,  dimensions,  length,  diameter,  thickness. 
Weight  of  pipe. 

Canals : 

Dimensions. 

Length,  width,  depth. 

Cubic  yards  of  excavation. 

Masonry,  cubic  yards. 

Gates  and  operating  mechanism. 

Fore  hay:  , 
Dimensions. 
Cubic  yards  masonry. 
Gates  and  operating  mechanism. 
Gratings,  dimensions. 

Penstock  or  pressure  pipe: 
Dimensions. 
Weight  of  material. 
Cubic  yards  excavation,  and  backfill. 

Buildings  are  treated  under  a  separate  heading,  as  is  also  the 
machinery,  —  except  the  waterwheels,  —  switchboard  and  other 
electrical  apparatus.  Turbine  waterwheels  are  inventoried  on  the 
following  form,  which  is  one  of  those  devised  by  the  Joint  Engineer- 
ing Department  of  the  Wisconsin  Commissions. 


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FORMS  FOR  USE  IN  MAKING  A  VALUATION        115 

Valuation  of  a  Waterworks  Property.  —  Land  and  buildings 
arc  treated  in  previous  chapters,  leaving  the  operating  plant 
and  distributing  system  to  be  covered  here. 

Wells,  if  driven,  are  valued  at  so  much  per  foot ;  while  excavated 
wells  can  be  appraised  on  the  cubic  yard  basis.  Reservoirs  will 
ordinarily  be  covered  by  the  land  values,  but  the  dam  built  to 
create  the  reservoir  will  have  to  be  appraised  as  in  water  power 
property,  by  the  cubic  yard. 

Form  of  Summary  for  Appraisal  of  Waterworks 


Items 

Cost  to 

Reproduce 

New 

Present 
Value 

1.  Wells,  intake  and  suction 

2.  Reservoirs  and  standpipes 

3.  Distribution  system 

4.  Buildings  and  structures 

5.  Pumping  plant  and  equipment 

6.  Miscellaneous 

7.  Total  of  items  1  to  6 

8.  Add  percentage  ^ 

9.   Total  of  items  7  and  8 

10.  Connections  to  consumers 

1 1 .  Office  furniture  and  fixtures 

12.  Tools  and  implements 

13.  Horses,  wagons  and  harness    ...... 

14.  Stores  and  supplies 

15.  Paving 

16.  Land 

17.  Total  of  items  10  to  16 

Total  of  items  9  and  17 

Above  is  a  form  of  summary  to  be  used  in  completing  an 
appraisal  of  waterworks.  It  will  be  seen  that  a  percentage  is 
charged  only  on  the  total  of  items  1  to  6,  while  items  10  to  16 
take  no  percentage,  as  items  10  to  14  included  are  being  purchased 
or  installed  during  current  business.  The  same  remarks  aj^ply  to 
paving  here  that  were  made  on  street  railways,  as  also  do  the 

>  This  percentage  is  to  cover  engineering  supervision,  interest  during  construc- 
tion, employers'  and  public  liabilities,  contingencies,  etc. 


116  EXGIXEERIXG   VALUATION 

remarks  on  land.  Item  10,  "Connections  to  Customers,"  must 
be  kept  entirely  separate,  as  the  item  is  only  retained  in  a  valuation 
because  it  has  been  decided  by  court  that  even  though  the  Company 
did  not  own  them,  yet  they  must  be  treated  as  if  Company  owned 
in  an  appraisal. 

"The  'fair  and  equitable  value'  of  the  works,  to  be  paid  therefor 
by  the  city  under  such  act,  should  not  be  determined  bj^  capitalization  of 
the  earnings,  —  thereby,  in  effect,  valuing  the  franchise,  which  no  longer 
existed,  —  nor  should  such  value  be  limited  to  the  cost  of  reproducing 
the  plant,  but  allowance  should  be  made  for  the  additional  value 
created  by  the  fact  of  connections  with  and  supply  of  buildings,  al- 
though the  company  did  not  own  the  connections."  (62  Fed.  Repts.,  853.) 
July  2,  1894,  National  Waterworks  Co.  v.  Kansas  City. 

The  two  forms  following  are  among  those  devised  by  the  Joint 
Engineering  Department  of  the  Wisconsin  Commissions.  The 
first  refers  to  the  detail  of  waterworks  pumps.  Boilers,  and  other 
steam  auxiliaries,  are  the  same  as  those  of  any  steam-power  plant, 
and  forms  for  use  in  appraising  them  will  be  found  on  pages  96 
and  97. 

If  the  pump  is  operated  by  water  power,  form  for  inventorying 
the  turbine  wheels  will  be  the  same  as  that  used  for  a  water  power 
and  is  shown  on  page  114. 

The  second  blank  given  here  is  for  use  in  appraising  the  mains 
buried  in  the  street,  and  the  same  form  can  be  used  for  appraising 
the  mains  of  a  gas  property.  When  records  are  found  to  be  in- 
complete it  is  well  to  dig  up  the  streets  at  intersections  to  deter- 
mine the  location,  size,  material  and  condition  of  pipes. 

The  price  of  cast  iron  pipe  varies  so  much  that  it  probably  is 
the  fairest  to  take  as  an  appraisal  price  the  average  for  a  term  of 
years,  say  five  years,  although  the  courts  apparently  decide  that 
the  price  at  the  date  of  appraisal  is  the  one  that  must  be 
used. 


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118 


FORMS  FOR  USE  IN  MAKING  A  VALUATION       119 

Valuation  of  a  Telephone  Property.  —  The  preparation  of 
schedules  of  the  property'  of  a  telephone  company  will  call  for 
considerable  detail  work,  with  good  judgment,  much  experience 
and  expert  knowledge  of  the  business.  Especially  is  this  the  fact 
when  one  comes  to  applying  depreciation,  for  the  judgment  of 
authorities  in  different  parts  of  the  country  varies  considerably  as 
regards  the  rates  to  be  used.  For  instance,  Chicago  charged  12| 
per  cent  for  annual  depreciation  on  underground  cable  while 
Boston  only  charged  7^  per  cent,  and  the  Michigan  appraisal 
used  10  per  cent.  Underground  conduit  in  Boston  was  depre- 
ciated at  the  rate  of  3^  per  cent,  while  in  Chicago  it  was  cal- 
culated at  a  5-per  cent  rate. 

A  greater  rate  of  depreciation  is  allowable  on  telephone  lines 
than  on  those  used  by  the  telegraph  for  the  reason  that  they  have 
to  be  maintained  at  a  better  standard  of  construction  in  order 
to  produce  satisfactory  results.  Telegraph  lines  will  stand  a  rate 
of  depreciation  of  5  per  cent,  while  a  rate  of  8  per  cent  is  more 
equitable  for  telephone  lines. 

The  following  is  an  abstract  of  the  rules  followed  in  regard  to 
the  telephone  valuation  in  the  Michigan  appraisal : 

"Cost  of  Reproduction.  With  the  exception  of  copper,  current 
prices  have  been  used  for  labor  and  material,  it  being  considered  that 
the  current  prices  are  not  subject  to  fluctuations  and  will  not  be  materi- 
ally lower  in  the  future.  For  copper  wire,  however,  which  has  been 
subject  to  and  will  continue  to  fluctuate,  an  average  price  for  the  past 
seven  years  has  been  used.  Where  different  prices  are  noted  for  similar 
classes  of  equipment  the  same  may  be  interpreted  to  signify  a  difference 
in  character  and  quality  of  construction. 

"  Rate  of  Depreciation.  An  arbitrary  figure  of  40  per  cent  of  cost  of 
reproduction  has  been  taken,  below  which  no  depreciation  has  been 
allowed,  if  the  equipment  is  still  in  use  or  likely  to  be  continued  in  use. 
If  not  in  use  or  not  likely  to  be  used  again,  its  junk  value  only  has  been 
taken.     This  applies  to  all  the  following  equipment : 

"  Poles  and  Cross  Arms.  Accepting  about  twelve  years  as  the  aver- 
age life  of  a  pole  line,  a  depreciation  has  been  allowed  of  8  per  cent  per 
annum. 

"  Wire.  As  explained  above,  the  cost  of  reproduction  of  copi^er 
wire  has  been  taken  from  tlie  average  price  for  the  past  seven  years. 
Inasmuch  as  the  cost  of  copper  wire  is  figured  from  its  weight,  its  value 
does  not  differ  materially  regardless  of  its  length  of  servHce.  As  80  per 
cent  has  been  taken  as  the  junk  value  of  all  copper  wire  in  use,  no  depre- 
ciation has  been  allowed  below  that  figure.  For  copper  wire  in  use 
1  j^ear  or  less  its  full  value  will  be  taken. 


120 


EXGIXEERIXG  VALUATION 


"  For  2  years  and  less  than  3  years,  2|  per  cent. 
"  For  3  years  and  less  than  5  years,  5  per  cent. 
"  For  5  years  and  less  than  10  years,  10  per  cent. 
"  For  10  3'ears  and  over,  20  per  cent. 

"  Underground  Conduit.    A  depreciation  has  been  allowed  at  2  per  cent. 

"  Cable.  For  both  aerial  and  underground  (lead-covered  and  rub- 
ber) cable  a  depreciation  has  been  allowed  of  10  per  cent  per  annum. 

"  Submarine  Cable.  In  all  cases  this  material  has  been  treated 
specialh^  the  same  general  conditions  not  being  met  with  in  different 
pieces  of  submarine  cable. 

"Subscribers'  Stations  Equipment. — Accepting  ten  years  as  the 
average  length  of  time  that  this  equipment  is  used,  or  can  be  used, 
a  depreciation  has  been  allowed  of  10  per  cent  per  annum. 

"  Switchboards.  Under  general  conditions,  a  central  office  installa- 
tion does  not  exceed  an  average  length  of  life  of  ten  years.  A  deprecia- 
tion has,  therefore,  been  allowed  of  10  per  cent  per  annum." 


Form  of  Summary  for  Use  in  the  Appraisal  of 

Telephone 

Properties 

Items 

Cost  to 

Reproduce 

New 

Present 

Value 

1.  Buildings  and  structures 

2.  Exchange  equipment 

3.  Telephones  and  appliances 

4.  Distribution  system         

5.  Power  plant  equipment 

6.  Shops,  power  and  equipment 

7    IMiscellaneous    ... 

8.  Total  of  items  1  to  7 

9.  Add  percentage  ^ 

10.   Total  of  items 

11.  Connections  to  customers 

12.  Office  furniture  and  fixtures 

13.  Tools  and  implements 

14.  Horses,  wagons  and  harness 

15.  Stores  and  supplies 

16.  Paving 

17.  Land 

18.   Totalof  items  11  to  17 

Grand  total  of  items  10  and  18 

'  This  percentage  is  to  cover  engineering  and  supervision,  interest  during  con- 
struction, employers'  and  public  liability,  contingencies,  etc. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION       121 

Above  is  a  form  of  summary  for  use  with  the  appraisal  of 
a  telephone  property.  The  same  remarks  apply  to  the  items  above 
and  below  the  percentage  item  as  in  the  summaries  for  railways  and 
waterworks.  A  notable  valuation  of  telephone  properties  was 
that  of  the  New  England  Telephone  Company  by  Professor  D.  C. 
Jackson.  Too  much  care  cannot  be  taken  in  making  up  the  original 
list  or  inventory  of  such  a  property.  Unlike  waterworks,  gas  and 
electric  light  connections,  those  made  by  a  telephone  company 
belong  to  the  company,  but  produce  little  if  any  scrap  or  salvage, 
except  for  the  instruments,  when  removed. 

With  slight  modification,  forms  used  for  telephone  appraisals 
can  be  used  for  valuing  telegraph  properties. 

Court  Decisions  on  Telephones.  —  In  the  case  of  the  State  of 
Oklahoma  and  others  against  the  Pioneer  Telephone  and  Tele- 
graph Company,  operating  a  local  telephone  exchange  at  Enid, 
and  toll  and  long-distance  lines  to  other  parts  of  the  state, 
the  Supreme  Court  has  handed  clown  an  important  decision  in- 
volving the  reasonableness  of  rates  charged  by  a  telephone  com- 
pany apparently  establishing  the  law  governing  regulation  of  rates 
by  public-service  corporations  in  that  state. 

The  case  reached  the  Supreme  Court  from  the  Corporation 
Commission  of  that  state,  and  the  opinion  and  decision  of  the 
Court  involved  a  discussion  of  the  question  of  the  valuation  of  the 
property,  the  right  and  obligation  to  create  a  depreciation  reserve 
fund  and  the  rate  of  return,  these  three  questions  being  the  sub- 
ject of  contention  between  the  Company  and  the  Commission  : 

"There  is  no  contention  that  any  value  on  account  of  unexpired, 
franchise  or  for  good  will  should  be  added  to  the  productive  value  in 
order  to  ascertain  the  present  value,  but  it  is  contended  that  by  reason 
of  the  fact  that  appellant's  plant  has  an  established  system  of  operation, 
has  at  present  customers  sufficient  in  number  to  pay  the  operating  ex- 
penses and  annual  depreciation  and  some  profit,  it  has  a  viihiv  beyond 
the  mere  cost  of  reproducing  the  plant.  This  clement  of  value  con- 
tended for  has  been  generally  referred  to  by  the  authorities  as  the  '  going 
concern  value,'  or  'going  value.' 

"It  is  apparent,  however,  that  a  complete  telephone  plant,  with- 
out a  single  subscriber,  or  with  but  few  subscribers,  is  less  valuable 
to  both  the  owner  of  the  plant  and  to  the  members  of  the  public  it 
serves,  than  the  same  plant  with  large  patronage.  The  more  people 
a  subscriber  can  communicate  with  over  a  telephone  exchange  the  more 
service,  as  a  general  rule,  is  such  an  exchange  to  him ;   and  it  is  only 


122  ENGINEERING  VALUATION 

wlicn  such  exchange  has  subscribers  that  the  pro]XTty  of  the  owner 
invested  therein  has  an  earning  power.  But  subscribers  are  not 
obtained  without  expenditure  of  money,  la*bor  and  time,  during  which 
the  capital  invested  in  the  phmt  earns  nothing  and  often  fails  to  pay 
operating  expenses. 

"During  the  term  of  development  there  is  a  loss  of  money  actually 
expended  and  of  dividends  upon  the  property  invested.  How  shall 
this  be  taken  care  of  ?  Must  it  be  borne  by  the  owner  of  the  plant  ? 
Or  by  the  initial  customers  ?  Or  shall  it  be  treated  as  part  of  the 
investment  or  value  of  the  plant,  constituting  the  basis  upon  which 
charges  shall  be  made  to  all  customers  who  receive  the  benefits  from 
the  increased  service-rendering  power  of  the  plant  by  reason  of  these 
expenditures?  It  seems  that  the  last  solution  is  the  original,  just  and 
correct  one.  If  rates  were  to  be  charged  from  the  beginning  so  as  to 
cover  these  expenditures  and  earn  a  dividend  from  the  time  a  plant  is 
first  operated,  the  rate  to  the  first  customers  would  be  in  many  instances, 
if  not  in  all,  so  exorbitant  as  to  be  prohibitive,  and  would  be  so  at  the 
time  when  the  plant  could  be  of  least  service  to  them.  On  the  other 
hand,  the  public  cannot  expect  as  a  business  proposition  or  demand  as 
a  legal  right  that  this  loss  shall  be  borne  by  him  who  furnishes  the 
service,  for  investors  in  public  service  property  make  such  investments 
for  the  return  thej^  will  yield  ;  and,  if  the  law  requires  that  a  portion  of 
the  investment  shall  never  yield  any  return,  but  shall  be  a  total  loss 
to  the  investor,  capital  would  unwillingl}'  be  placed  into  such  classes 
of  investments;  but  the  law,  in  our  opinion,  does  not  so  require. 
Private  property  can  no  more  be  taken  in  this  method  for  public  use 
without  compensation,  than  by  any  other  method.  When  the  use 
of  the  property  and  the  e.xpenditures  made  during  the  non-expense 
paying  and  non-dividend  pa}'ing  period  of  the  plant  are  treated  as  an 
element  of  the  value  of  the  property  upon  which  fair  returns  shall  be 
allowed,  then  the  burden  is  distributed  among  those  who  receive  the 
benefits  of  the  expenditures  and  the  use  of  the  property  in-its  enhanced 
value." 

Valuing  an  Electric  Light  and  Power  Plant.  —  The  appraisal  of  an 
electric  li^ht  property  is  comparatively  easy,  as  it  is  nearly  all 
permanently  placed  and  is  not  moving  about  as  are  street  cars. 
Little  advice  is  necessary,  other  than  to  be  careful  in  making  in- 
ventories that  everything  is  included.  The  ordinary  electric  plant 
about  the  country  should  be  appraised  complete  easily  in  thirty 
days,  some  of  them  in  less  time. 

The  National  Electric  Light  As.sociation  has  spent  much  time 
and  has  been  to  a  great  deal  of  trouble  in  getting  up  a  standard 
system  of  accounts  which  has  been  agreed  upon,  and  it  is  hoped 


FORMS   FOR  USE   IN   MAKING   A  VALUATION        123 

that  the  companies  will  make  up  all  their  books  upon  the  common 
basis  specified.  Following  is  a  schedule  of  these  accounts  as  taken 
from  the  standard  book  of  rules  issued  by  the  association : 

Schedule  of   Accounts  as   Specified  by  the   National  Electric  Light 

Association 

Construction  Accounts 
Organization. 

Royalties,  franchises  and  licenses. 

Generating  plant  —  steam. 
Land. 
Structure. 
Boiler  plant. 
Prime  movers. 
Electrical  plant. 
Miscellaneous. 

Generating  plant  —  hydraulic. 
Land. 
Structure. 

Dams,  canal  and  pipe  lines. 
Turbines  and  water  wheels. 
Electrical  plant. 
Miscellaneous. 

Generating  plant  —  gas. 
Land. 
Structure. 

Gas  producers  and  accessories. 
Gas  engines. 
Electrical  plant. 
Miscellaneous. 

Underground  conduits. 

Poles  and  fixtures. 

Transmission. 

Conductors  —  overhead  and  underground. 

Land. 

Structure. 

Substation  equipment. 

Storage  batteries. 


124  ENGINEERING  VALUATION 

Distribution. 

Overhead  conductors  and  devices. 

Underground  conductors. 

Services. 

Meters, 

Line  transformers. 

Arc  and  glower  lamps. 

Customers'  installation. 

Municipal  street-lighting  system. 

General  office  and  branches. 
Land. 
Structure. 
Furniture  and  fixtures. 

Other  equipment 
Land. 
Structure. 

Coal-storage  equipment. 
Shop  equipment. 
Storeroom  equipment. 
Stable  equipment. 
Laboratory  equipment. 
Tools  and  implements. 

Miscellaneous  —  during  construction. 
Engineering  and  superintendence. 
Law  expenditures. 
Taxes. 
Interest. 
Injuries. 
General, 

In  making  an  appraisal  of  an  electric  light  property  it  is  not 
necessary  to  summarize  in  such  detail  as  is  shown  in  the  above  Hst 
of  accounts,  but  a  summary  such  as  follows  can  be  made  sufficient 
for  the  purpose  and  the  detail  of  which  it  is  made  up  can  be  used 
for  filling  out  the  more  elaborate  summary  if  found  necessary. 

As  will  be  seen  by  reference  to  the  following  form,  the  percentage 
is  added  to  the  first  five  items  only,  the  remaining  items  requiring 
no  addition  for  engineering  and  contingencies.  The  item  "con- 
nections to  customers"  is  included  in  the  valuation  because  so 


FORMS   FOR  USE  IN  MAKING  A  VALUATION       125 

ordered  by  the  courts.  It  is  still  a  question,  though,  if  they  sh(juld 
be  charged  in  capital  account,  and  if  so,  should  be  amortized  at 
a  heavy  rate,  this  rate  being  determined  by  the  estimated  average 
permanency  of  the  connections.  Underground  services  are  ex- 
tended from  main  to  curb  at  the  expense  of  the  company,  and  of 
course  remain  the  property  of  the  company.  It  is  only  the 
balance  of  the  connection,  that  upon  the  property  of  the  con- 
sumer, that  is  in  question. 


Form  of  Summary  for  Appraisal  of  Electric  Light  and  Power  Company 


Items 

Cost  to 

Reproduce 

New 

Prese.nt 
Value 

1.  Buildings  and  structures 

2.  Power   plant   equipment,    including   storage 

batteries 

3.  Distribution  system 

4.  High  tension  transmission  system    .... 

5.  Miscellaneous 

6.  Total  of  items  1  to  5 

7.  Add  percentage  ^ 

8.  Total  of  items  6  and  7 

9.  Connection  to  consumers 

10.  Office  furniture  and  fi.xtures 

11.  Tools  and  implements 

12.  Horses,  wagons  and  harness    ...... 

13.  Stores  and  suppHes 

14    Paving               

15.   Land    .     .          

16.   Total  of  items  9  to  15 

Total  of  items  8  and  16 

Items  10  to  13  are  being  maintained  by  constant  purchase, 
and  it  is  most  obvious  that  no  percentage  should  be  charged 
against  them. 

Item  14,  Paving,  is  only  included  where  a  local  company  has 

1  This  percentage  is  to  cover  engineering,  supervision,  interest  during  construc- 
tion, employers'  and  public  liability,  contingencies,  etc. 


126  EXGIXEERIXG   VALUATION 

conduits  in  paved  streets,  and  even  then  it  is  nearly  always  in 
dispute  as  to  whether  pavement  should  be  included  in  the  capital 
or  should  be  charged  to  an  expense  account. 

The  last  item,  No.  15,  Land,  is  almost  always  purchased  through 
a  real  estate  dealer,  who  invariably  charges  his  commission  to  the 
seller.  When  purchased  straight,  as  between  the  company  and 
owner,  there  will  be  no  expense.  Preliminary  surveys,  estimates, 
etc.,  should  be  charged  to  development  expense. 

In  appraising  the  copper  wire  it  is  fairest  to  take  the  average 
price  for  a  term  of  years  —  say,  five  —  rather  than  the  price  on 
the  day  of  the  appraisal,  even  though  the  Supreme  Court  decided 
that  the  prices  at  the  date  of  the  valuation  were  the  ones  to  use. 

Prices  of  poles  might  be  the  average  for  the  same  length  of  time 
if  of  enough  importance,  or  if  the  change  in  price  had  been  con- 
siderable during  the  time  of  upbuilding. 

Valuing  a  Gas  Plant  and  Property.  —  The  principal  difficulty  about 
appraising  a  gas  property  is  in  determining  and  verifying  the  size 
and  quality  of  the  mains  that  are  buried  in  the  streets.  Often 
records  are  incomplete,  especially  so  with  companies  which  have 
been  established  for  a  long  time.  To  be  sure,  even  with  what  are 
apparently  complete  records,  it  is  best  to  make  an  excavation  at 
street  intersections,  uncovering  the  pipe  so  that  it  may  be  in- 
spected for  type,  size,  quality  and  deterioration.  The  form  sho\\Ti 
on  page  118,  under  waterworks  appraisal,  can  be  used  for  pipe  in- 
ventory. 

It  may  be  necessary  also  to  excavate  in  the  street  for  one  or  more 
house  connections  in  order  to  show  how  made,  type  of  connections 
and  pipe  used,  size  and  amount  of  deterioration.  In  listing  house 
connections  it  is  best  to  separate  them  into  two  parts,  i.e.  length 
from  main  to  curb,  which  belongs  unquestionably  to  the  com- 
pany, and  from  curb  to  house,  the  ownership  of  which  is  always 
in  question.  The  average  length  from  main  to  curb  can  be 
gotten  from  the  map,  i)ut  the  lengths  from  curb  to  house  will  have  to 
be  approximated  and  can  be  taken  as  an  average  length,  although 
perhaps  more  accurate  to  average  the  length  of  the  connection 
on  each  street. 

In  appraising  the  cast-iron  i)ip('  in  the  distribution  .system  of 
a  gas  plant  it  is  best  to  use  the  average  price  for  a  term  of  years, 
or  at  loast  for  a  period  that  would  be  taken  to  install  the  plant 
complete. 


FORMS  FOR  USE  IN  MAKING  A  VALUATION       127 

Listing,  checking  and  appraising  other  items  in  a  gas  plant 
present  few  difficulties  other  than  care  in  setting  prices  for  the 
particular  locality;  these  will  sometimes  be  governed  by  excessive 
freight  charges  when  at  considerable  distance  from  supply.  Prices 
for  labor  also  must  be  given  close  attention. 

Following  will  be  found  a  form  of  summary  for  use  with  the 
appraisal  of  a  gas  property,  and  the  remarks  made  for  the 
electric  light  schedule  regarding  items  below  the  percentage 
added  and  connections  to  customers  apply  with  equal  force  to  this 
list. 

Form  of  Summary  for  Use  in  the  Appraisal  of  a  Gas  Property 


Items 

Cost  to 

Reproduce 

New 

Present 
Value 

1.  Buildings  and  structures 

2.  Gas  generating  plant  and  equipment     .     .     . 

3.  Distribution  system 

4.  High  pressure  system 

5.  Miscellaneous 

6.  Total  of  items  Nos.  1  to  5 

7.  Add  percentage  ^ 

8.  Total  of  items  Nos.  6  and  7 

9.  Connections  to  consumers 

10.  Office  furniture  and  fixtures 

11.  Tools  and  implements 

12.  Horses,  wagons  and  harness 

13.  Stores  and  supplies,  including  manufactured 

gas  in  holders  and  mains 

14.  Paving 

15.   Land 

16.   Total  of  items  Nos.  9  to  15 

Total  of  items  Nos.  8  and  16 

Land  and  buildings  are  treated  in  previous  chapters. 

'  This  percentage  is  to  cover  engineering,  super\'ision,  interest  during  construc- 
tion, employers'  and  public  liabilities,  contingencies,  etc. 


128  EXGINEERIXG  VALUATION 

The  Gas  Generating  Plant  will  consist  of: 
Benches  of  retorts. 
AVater  gas  machines,  complete. 
Oil  gas  generating  machines. 
Scrubbers  and  condensers. 
P.  and  A.  tar  extractors. 
Cast-iron  washers. 
Exhausters. 
Purifiers. 

Cast-iron  gas  connections  within  the  plants. 
Piping  for  blast  lines. 
Piping  for  oil  lines. 
Piping  for  drains. 
Piping  for  steam. 
Piping  for  water. 
Boilers,  steam. 

Pumps,  for  boiler  feed  and  for  other  purposes, 
Centrifrugal  blowers. 
Station  meters. 
Ammonia  concentrators. 
Ammonia  storage  tanks. 
Tar  and  ammonia  wells. 
Holders,  or  gasometers. 
Governors. 

The  Distribution  System  will  be  made  up  of : 
Mains  on  street,  starting  at  the  gasometer. 
House  services,  from  main  to  curb. 
House  services  from  curb  to  meter  in  the  house. 
Meters  on  premises  of  customers. 
Pressure  regulators  on  customers'  premises. 

The  High  Tension  System  will  consist  of  : 

All  appliances  in  the  plant  for  raising  the  pressure,  such  as 

pumps  ; 
All  high  pressure  tanks  or   appliances  outside  the  plant  used 

exclusively  for  operating  the  high  pressure  system; 
All  high  pressure  mains;  and. 
Any  gasometer  that  may  be  used  for  regulating  the  pressure 

for  service,  including  any  regulators. 


FORMS  FOR  USE  IN  MAKING   A  VALUATION       129 

Valuing  a  Manufacturing  Property.  —  The  appraisal  of  a  manu- 
facturing property  dilfers  from  that  of  an  electric  light  power  sta- 
tion only  in  there  being  more  detail,  one  of  the  most  troublesome 
items  being  that  of  materials  in  process  of  manufacture.  These 
should  be  priced  at  the  cost  up  to  the  point  where  found.  Con- 
servative manufacturers  appraise  manufactured  product  in  stock, 
ready  for  sale  at  the  cost  to  them;  others  estimate  it  at  the  mar- 
ket price  at  date  of  the  inventory.  The  following  extract  from 
Treasury  Decisions  shows  how  the  Government  looks  upon  this 
item  on  account  of  the  Special  Excise  Tax. 

"  44.  Cost  of  manufactured  articles,  or  articles  in  process  of  manu- 
facture, held  to  include  original  cost  of  materials  used  plus  cost  of 
labor,  etc."     (Internal  Revenue  T.  D.  1742,  Dec.  15,  1911.) 

It  is  hardly  possible  to  make  a  summary  that  will  apply  to  all 
manufacturing  plants,  but  the  following  will  suffice  for  most  of 
them. 


130 


ENGINEERING  VALUATION 


Sketch  of  a  Summary  for  Use  in  Valuing  a  Manufacturing  Property 


Items 

Cost  to 

Reproduce 

New 

Present 
Value 

1.  Power  plant,  including  dams  and  reservoirs, 

canals    and    penstocks,   waterwheels    and 
governors,    boilers    and    engines    and    all 
steam  plant 

2.  Shafting  and  belting 

3.  Machinery  for  manufacturing :  here  list  the 

main  manufacturing  equipment  of  the  fac- 
tory, such  as  looms  and  spinnmg  frames, 
knitting  machinery,  etc.,  if  textile ;  machine 
tools,  if  making  metal  goods,  etc. 

4.  Repair  shop  equipment  and  tools     .... 

5.  Buildings  and  structures 

6.  Manufactured  product 

7.  Miscellaneous,  including  material  in  process  of 

manufacture 

8.  Total  of  items  1  to  7 

9.  Add  percentage  ^ 

10.  Total  of  items  8  and  9 

11.  Office  furniture  and  fixtures 

12.  Horses,  wagons  and  harness 

13.  Stores  and  suppUes 

14.  Land,  including  fence 

15    Railroad  siding 

16.   Total  of  items  11  to  15 

Total  of  items  10  and  16 

1  This  percentage  is  to  cover  engineering,  supervision,  interest  during  construc- 
tion, employers'  and  public  liabilities,  contingencies,  etc. 


CHAPTER  VI 
THE  COST  OF  VALUING  A  PROPERTY 

One  of  the  first  questions  to  be  asked  when  the  appraisal  of  a 
property  is  under  consideration  is,  what  kind  of  a  valuation  is 
wanted,  that  is,  to  what  extent  is  detail  required,  whether  a  valua- 
tion is  wanted  on  the  unit  cost  basis,  or  on  the  basis  of  a  bill  of 
material ;  whether  a  complete  list  of  items  in  great  detail  will  be 
necessary,  or  if  an  inventory  can  be  taken  of  the  main  producer 
units  and  unit  price  assigned  to  them?  All  these  and  many  other 
particulars  must  be  known  if  one  is  to  give  a  proper  estimate  of 
the  cost  of  an  engineering  valuation  of  a  large  property.  The  cost 
of  a  unit  valuation  may  be  very  small  and  can  be  completed  in  a 
short  time  and  by  a  very  small  force.  The  writer  has  alone  made 
in  thirty  days  such  a  valuation  of  a  property  which  amounted  to 
five  million  dollars,  and  again  in  twenty-five  days  of  another  prop- 
erty valued  at  three  million  dollars.  A  recent  valuation  of  a  rail- 
road system  in  the  north  was  made  in  ten  days  by  an  engineer  who 
had  to  take  his  appraisal  into  court.  A  safe  estimate  for  the  cost 
of  valuing  large  properties  is  from  three  tenths  to  five  tenths  per 
cent  of  the  total  value  found.  Appraisals  of  property  when  the 
inventory  is  made  in  full  detail  will  take  from  two  months  to  a  year 
and  can  be  made  to  cost  any  sum  the  owners  may  set,  by  arrang- 
ing the  amount  and  completeness  of  the  inventory  according  to 
the  price  desired.  Some  appraisals  where  full  and  accurate  detail 
have  been  wanted  have  taken  a  chief  engineer  and  force  of  fifty 
men  two  to  three  months ;  others  have  made  use  of  sixty  men 
for  six  months.  All  depends  on  the  experience  of  the  workers 
and  the  completeness  of  the  inventory  desired.  When  inven- 
tories are  prepared  by  the  owners  so  that  they  may  be  checked 
up  quickly  by  the  appraiser,  an  expert  appraiser  can  check  up 
the  material  quite  as  much  as  may  be  necessary  and  place  prices 
which  can  be  extended  by  the  clerical  force  of  the  owners,  if  econ- 
omy is  desired,  and  the  whole  matter  can  be  closed  in  ten  days 

131 


132  ENGINEERING  VALUATION 

with  but  one  expert  appraiser  necessary.  This  appHes  of  course 
to  a  small  plant  of  whatever  nature. 

A  factory  property  can  be  inventoried  by  a  shop  force,  checked 
by  the  appraisers,  prices  set  by  experts,  summarized  and  a  com- 
plete report  made  in  almost  any  length  of  time  that  may  be  desired. 

Some  of  the  best  listers,  makers  of  inventory  and  expert  ap- 
praisers of  factory  property  and  small  wares  are  the  people  em- 
ployed for  such  work  by  the  large  auctioneering  firms.  They 
are  the  most  systematic  and  highly  experienced  of  any  men  of 
like  business  the  writer  has  come  across. 


CHAPTER  VII 

VALUE  OF  GOOD  WILL,   GOING   CONCERN 
OR   GOING   VALUE 

Lord  Elden  says  that  "good  will  is  nothing  more  than  the 
probability  that  the  old  customers  will  resort  to  the  old  place 
.  .  .  that  it  involves  an  element  of  personal  choice,  and  is  in- 
appropriate where  there  can  be  no  choice,  and  therefore  should  be 
given  no  value." 

Justice  Moody,  in  his  opinion  on  the  Knoxville  Water  Company 
case  says,  of  going  concern  value : 

"This  sum  we  understand  to  be  an  expression  of  the  added  value  of 
the  plant  as  a  whole  over  the  sum  of  the  values  of  its  component  parts, 
which  is  attached  to  it  because  it  is  in  active  and  successful  operation 
and  earning  a  return.  We  .  .  .  leave  that  question  to  be  considered 
when  it  necessarily  arises." 

John  W.  Alvord  says,  "Going  value  may  ...  be  defined  as  the 
value  of  a  created  income,  or,  .  .  .  is  the  cost  of  reproducing  a 
given  income." 

And  again,  the  late  Wm.  H.  Bryan  gave  as  a  definition  of  "go- 
ing value"  : 

"It  is  the  value  such  a  plant  has  over  and  above  its  physical  value, 
due  to  the  fact  that  it  is  not  a  bare  and  idle  system,  but  it  is  in  actual 
operation,  doing  business  with  large  numbers  of  connected  customers. 
It  is  something  like  the  good  will  of  a  business,  but  is  even  more  tangible." 

It  is  thought  that  the  above  definitions  sufficiently  elucidate  the 
terms  "good  will,"  "going  concern"  and  "going  value,"  but  the 
difficulty  remains  as  to  how  to  evaluate  the  property  so  defined. 
It  has  been  said  that  value  is  that  sum  which  an  article  will  bring 
when  sold  by  a  willing  seller  to  a  willing  buyer,  and  on  this  basis 
it  also  might  be  remarked  that  the  value  of  the  above-mentioned 
features,  either  one  or  all,  would  be  represented  by  the  amount 
over  and  above  the  actual  physical  value  of  a  property  that  a 
buyer  would  willingly  give.  As  a  matter  of  fact,  English  syn- 
dicates when  purchasing  property  in   the  United   States  often- 

133 


134  EXGIXEERING  VALUATION 

times  express  the  value  of  the  good  will  in  terms  of  the  net  in- 
come produced  by  the  propert}'  in  an  agreed  number  of  years. 
That  is,  after  evaluating  the  physical  plant  and  agreeing  upon 
that  point  the  value  of  the  good  Avill,  etc.,  will  be  the  sum  of  the 
net  income  earned  by  the  property  for,  say,  three  consecutive 
years  immediately  preceding  the  sale.  Cases  are  known  where 
as  high  as  five  years'  net  income  has  been  paid  for  the  good  will 
of  a  very  profitable  manufacturing  concern.  For  manufactur- 
ing properties  this  method  offers  an  easy  solution  of  the  problem. 
An  allowance  for  "good  will"  is  not  applicable  to  a  public 
utilities  property  when  such  a  property  is  a  monopoly,  for  all 
court  decisions  are  against  it.  The  terms  "going  concern"  and 
"going  value"  are  practically  synonymous,  and  may  be  further 
defined  as  representing  that  increase  in  value  due  to  the  human 
effort  put  into  the  property  by  the  management,  including  not 
only  the  actual  money  expended  in  building  up  the  business  but 
the  quality  of  brains  brought  to  bear  on  the  work.  In  appraising 
waterworks  property,  "going  value"  is  represented  by  the  con- 
nected business  worked  up  by  the  management,  but  in  addition, 
the  popularity  of  the  management  and  the  company,  which  if  in 
good  standing  with  the  public  will  add  still  further  to  the  "going 
concern"  value.  This  last  value  is  one  of  the  most  difficult  to 
appraise  and  under  any  circumstances  will  be  an  arbitrary  value 
based  upon  the  opinion  of  some  one  experienced  in  appraising  such 
matters.  As  to  the  value  of  a  worked-up  business,  the  Wisconsin 
Commission  holds,  in  one  case,  "that  the  actual  reasonably  wise 
expenditure  of  money  towards  getting  the  business  of  the  plant 
established  may  be  included  in  the  value  to  be  allowed  for  the 
purpose  of  fixing  rates." 

Again,  in  the  opinion  of  Judge  Savage  in  the  case  of  Brunswick 
and  Topham  Water  District  v.  Maine  Water  Co.,  the  judge  says: 

"that  the  value  of  a  structure  is  enhanced  by  the  fact  that  it  is  a  struc- 
ture in  actual  use,  ...  it  is  a  going  concern,  the  going  concern  part 
of  it  has  no  existence  except  as  a  characteristic  of  the  structure.  If 
no  structure,  no  going  concern.  If  a  structure  in  use,  it  is  a  structure 
whose  value  is  affected  by  the  fact  that  it  is  in  use.  There  is  only 
one  value.     It  is  the  value  of  the  structure  as  being  used." 

But  this  "  going  value  "  was  first  officially  recognized  in  a  decision 
rendered  by  Justice  Brewer  in  1894  in  the  Kansas  City  Waterworks 
case  (62  U.  S.  Fed.  Rep.  853).     "The  City  steps  into  possession 


VALUE  OF  GOOD  WILL  135 

of  a  property  which  not  only  has  the  abihty  to  earn,  but  is,  in 
fact,  earning.  It  should  pay,  therefore,  not  merely  the  value  of 
a  system  which  might  be  made  to  earn,  but  that  of  a  system  which 
does  earn." 

The  difficulty  of  appraising  going  concern  value  may  be  illus- 
trated still  further  by  the  fact  that  in  one  of  the  most  important 
appraisals  of  recent  years,  in  the  hands  of  five  of  the  leading 
specialists  of  the  country,  no  two  of  them  agreed  as  to  the  method 
of  computation.  Therefore  one  hesitates  to  attempt  to  outline 
any  method  of  evaluating  any  one  of  these  items  until  such  time 
as  a  very  full  discussion  may  be  had  by  a  board  competent  to 
judge  of  methods  and  results.  Such  a  discussion  was  had  of  the 
paper  by  John  W.  Alvord,  "  Notes  on  Going  Value,"  read  in  June, 
1909,  before  the  American  Waterworks  Association,  and  yet  little 
result  in  the  way  of  decisive  methods  came  from  it.  Even  the 
definitions  of  the  terms  here  under  discussion  are  not  agreed  upon, 
so  that  one  engineer  gives  one  meaning  to  a  term,  and  possibly 
mixes  his  definition  with  that  of  another.  Perhaps  no  better 
action  could  be  taken  than  to  have  a  joint  committee  appointed 
by  each  of  the  national  societies,  which  committee  should  meet 
and  agree  on  the  proper  definitions  for  these  terms  and  then  bring 
them  before  the  main  bodies  for  discussion  and  adoption.  If  any 
agreement  could  be  made  tending  toward  some  standard  method 
of  estimating  the  values  of  good  will,  going  concern  and  going  value, 
which  would  pass  muster  with  the  courts,  great  value  would  accrue. 

Earning  value  is  another  term  which  is  closely  allied  with  the 
three  above  mentioned  and  seems  to  be  especially  recommended 
by  all  writers  on  railroad  values.  It  has  evidently  been  given  se- 
rious consideration  by  the  Wisconsin  Commission,  for  in  the  case 
of  Hill  V.  Antigo  Water  Co.,  3  W.  R.  C.  623,  and  later  in  State 
Journal  Printing  Co.  et  al.  v.  Madison  Gas  and  Electric  Co.,  4 
W.  R.  C.  582,  the  commission  has  made  tables  computing  the 
earning  or,  as  they  discuss  it,  the  going  value  of  the  properties 
there  considered. 

In  discussing  the  evidence  produced  by  the  expert  witnesses 
for  the  respondent  company  in  the  Madison  Gas  case  the  com- 
mission covers  all  items  heretofore  classed  as  good  will,  going 
value,  earning  value,  etc.,  as  follows : 

"  The  connected  load  or  business  is,  of  course,  of  value  but  it  appears 
to  us  that  this  value  is  covered  by  the  cost  of  establishing  the  connections 
and  acquiring  the  business,  which  costs,  in  one  form  or  another,  have 


136  ENGINEERING  VALUATION 

found  their  way  into  the  accounts  of  the  company  and  therefore  con- 
stitute a  part  of  the  facts  that  are  taken  into  consideration  in  appraising 
the  plants.  The  keeping  of  the  plant  in  good  repair  or  good  operating 
efficiency  is  an  item  that  is  covered  in  the  operating  expenses  and,  theo- 
reticall}^  at  least,  is  borne  by  the  consumers.  It  is  not  an  item  for 
the  capital  account.  Possible  future  growth  of  the  business  can  hardly 
be  legitimately  capitalized  by  utilities  which  are  not  entitled  to  more 
than  reasonable  returns  on  their  investment ;  and  this  is  also  true  of 
the  rights  to  do  business  in  a  particular  city,  which  rights  have  been 
granted  free  of  cost.  The  ownership  of  land  to  meet  future  demands 
would  not  seem  to  imply  any  other  value  than  that  which  is  given  to 
this  land  by  including  it  in  the  physical  valuation.  Monopoly  privileges 
can  manifestly  not  be  justly  capitalized  as  against  consumers :  nor  is 
the  amount  a  man  might  be  willing  to  pay  for  a  plant  a  safe  guide  to 
its  value,  at  least  not  unless  all  the  facts  which  led  to  its  purchase  are 
fully  understood.  The  offer,  for  instance,  might  be  based  upon  condi- 
tions that  are  either  temporary  or  without  much  significance  in  so  far  as 
they  relate  to  the  value  of  the  plant.  One  year's,  or  even  the  first  year's 
gross  receipts,  may  throw  some  light  on  the  amount  of  business  a  plant 
has,  but  it  is  not  clear  to  us  on  just  what  theory  they  represent  the 
going  value  of  the  plant. 

"In  a  certain  sense  the  elements  enumerated,  together  with  other  like 
elements,  can  be  said  to  have  value.  But  it  seems  that  these  values 
depend  upon  and  are  covered  by  the  amounts  that  have  been  economi- 
cally and  legitimately  invested  in  the  physical  property  of  the  plant, 
the  natural  increase  in  the  value  of  the  land,  such  increases  in  the  value 
of  other  physical  parts  that  may  be  due  to  increase  in  prices,  and  the 
cost  of  developing  its  business  as  measured  by  the  deficits  from  opera- 
tion when  all  proper  and  legitimate  outlays  are  included  in  the  operat- 
ing expenses.  The  investment  in  the  plant  and  its  business,  as  thus 
measured  or  determined,  seems  to  us  to  constitute  the  valuation  upon 
which  the  investors  may  ordinarily  be  entitled  to  reasonable  returns 
and  upon  which,  under  like  conditions,  it  may  be  the  duty  of  the 
consumers  to  pay  rates  that  will  jneld  such  returns  to  the  investors. 

"It  is  true  that  such  elements  of  value  among  those  which  have  just 
been  enumerated,  as  the  natural  increase  in  the  value  of  land  and 
such  increases  in  other  property  as  may  be  caused  by  rising  prices  of 
labor  and  material,  may  not  be  offset  by  actual  outlays  on  the  part  of 
the  owners  of  such  plants ;  that  to  include  such  items  in  the  valuation 
may,  in  a  sense,  amount  to  a  capitalization  of  unearned  increments, 
and  that  there  may  be  some  question  as  to  whether  this  is  equitable, 
as  between  company  and  consumers.  There  is  much,  however,  to  be 
said  on  the  other  side  of  this  question.  That  the  law  as  well  as  our 
social  system  recognizes  such  gains  in  practically  all    other    under- 


VALUE  OF  GOOD  WILL 


137 


takings,  is  evident  from  the  fact  that  rents  and  interest  charges  usually 
vary  with  the  natural  increase  in  the  value  of  the  property  they  cover. 
As  the  cost  of  reproduction  of  a  plant  usually  plays  perhaps  the  most 
important  part  in  determining  its  value,  it  is  more  than  likely  that  the 
owners  would  have  to  bear  losses  in  case  land  and  other  property  had 
depreciated  instead  of  appreciated.  It  would  seem  only  just  that 
the  rule  should  work  both  waj^s.  Appreciations  in  value  of  the  kind 
in  question  are  also  of  an  essentially  different  nature  from  such  appre- 
ciations in  value  as  those  which  by  the  respondent's  testimony  is 
classed  as  going  value.  It  is  appreciation  of  a  kind  that  is  generally 
acknowledged  as  rightfully  belonging  to  the  owners  of  the  property 
which  has  thus  risen  in  value.  It  is  based  neither  on  unreasonable 
rates,  nor  on  assumed  business  conditions  or  similar  facts  of  this  nature. 
It  is  simply  due  to  general  growth  and  development.  In  view  of  these 
facts  there  would  seem  to  be  good  ground,  from  both  a  legal  and  economic 
view  point,  for  giving  such  appreciations  in  value  consideration  in  ap- 
praising public  utilities.  At  any  rate,  we  cannot  now  see  good  reasons 
upon  which  to  exclude  these  elements  from  the  appraisal  of  utility 
properties." 

The  Commissioners  tabulated  figures  showing  all  the  elements 
mentioned.  A  copy  of  the  table  showing  the  "earning  value" 
of  the  electric  light  plant  at  Madison  is  shown  below,  leaving  out 
the  gas  plant  for  the  sake  of  clearness. 

MADISON  GAS  AND  ELECTRIC  CO. —  EARNING  VALUE  —  ELECTRIC  PLANT 


Earning 

Additions 

In- 

Depreci- 
ation 

Interest 

Net  Earn- 

Value 
Dec.  31 

Year 

Value 
Jan.  1 

TO    Depre- 
ciable 

crease 
Land 

Straight 

Line 

8%   ON 

Value 

Total 

Opera- 

Property 

Values 

Basis 

18961 

$  134.400 

$  6,745 

$921 

$  4,030 

S  7,168 

$  153,264 

$14,718 

$  138,546 

1897 

1.38,546 

13,141 

1,620 

6,300 

11,084 

170,781 

25,427 

145,354 

1898 

145,3.54 

8,613 

1,620 

7,006 

11,628 

174,281 

30,123 

144,158 

1899 

144,158 

17.693 

1,620 

7,509 

11,533 

182,513 

34,120 

148.393 

1900 

148,393 

34,5.50 

1,620 

8,419 

11,871 

204,853 

32,924 

171,929 

1901 

171,929 

45,960 

1,620 

10,196 

13,7.54 

243,4.59 

34,810 

208,649 

1902 

208,649 

55,329 

1,620 

13,559 

16,692 

294,849 

40,388 

254,461 

1903 

2,54,461 

34,936 

1,620 

15,403 

20,357 

326.777 

31,818 

294,959 

1904 

294,959 

23,.345 

1,620 

17,199 

23,. 597 

360,720 

38,751 

321.969 

1905 

321,969 

42,889 

1,620 

18,400 

25,758 

410,636 

40,938 

369.698 

1906 

369,698 

13,138 

1,620 

20,605 

29,.576 

434.6.37 

54,341 

380,296 

1907 

380,296 

81,707 

1,620 

21,281 

30,424 

515,.328 

61,560 

453,768 

1908 

453,768 

13,887 

25,482 

36,301 

529,438 

78,987 

450,451 

•  Nine  months. 


First,  the  cost  of  the  electric  plant  at  the  time  it  was  acquired 
by  the  Company  was  determined  as  closely  as  possible.     To  this 


138  ENGINEERING  VALUATION 

cost  was  added  all  the  new  extensions ;  increases  in  land  values ; 
depreciation;  and  interest  and  profit  calculated  on  the  original 
cost  at  the  rate  of  eight  per  cent.  All  of  these  items  were  added 
together,  and  from  this  total  was  deducted  the  amount  of  the  net 
earnings  for  the  year,  the  balance  showing  the  value  of  the  plant  at 
the  end  of  the  year,  which  amount  v/as  carried  forward  and  became 
the  starting  amount  or  "Earning  Value"  for  Jan.  1st  for  the  fol- 
lowing year,  and  to  this  amount  was  again  added  the  amount  rep- 
resenting the  same  items  as  mentioned  above,  thus  determining 
for  each  year  the  value  which  could  be  used  for  the  following 
year  as  the  starting  or  earning  value  of  the  plant  at  that  time. 
The  last  value  determined,  that  for  the  year  ending  Dec. 
31,  1908,  was  taken  as  the  earning  value  of  the  plant.  The  only 
point  that  needs  explanation  in  this  computation  is,  the  addi- 
tion of  the  depreciation  to  the  values,  instead  of  subtracting 
it  from  the  income.  Of  course  the  result  is  the  same  in  either 
case,  but  the  Commission  here  calculated  on  the  setting  up  of  a 
depreciation  account  to  which  a  certain  sum  should  be  added  out 
of  the  surplus  each  year.  Again,  the  computing  of  interest  and 
profit  at  the  rate  of  8  per  cent,  and  the  addition  of  this  amount 
and  the  depreciation  to  the  general  cost  had  the  effect  of  carrying 
forward  to  the  next  year  any  balance  of  the  depreciation,  interest 
and  profit  that  was  not  covered  by  the  net  earnings  for  the  year, 
to  be  paid  during  the  prosperous  years  later  on  in  the  life  of  the 
plant.  The  results  showed  that  the  total  net  earnings  had  been 
more  than  sufficient  to  cover  the  cost  of  operation,  depreciation, 
interest  and  profit  at  the  rate  of  8  per  cent  on  investments. 

This  method  of  computing  the  going  value  of  a  corporation 
is  merely  basing  such  a  value  on  the  earnings  alone  and  must 
be  used  with  much  care,  for  the  courts  look  askance  on  a  value 
of  properhj  based  upon  earnings,  although  some  of  the  decisions 
in  the  past  have  taken  earnings  into  consideration  in  calculat- 
ing the  value.  (See  Cotting  v.  Kansas  City  Stockyards  Co., 
52  Fed.  Rep.  851;  Monongahela  Navigation  Co.  v.  U.  S.,  13 
Sup.  Ct.  622;  Montgomery  County  v.  Schuylkill  Bridge  Co., 
20  Atl.  Rep.  407;  and  Covington  and  Lexington  Turnpike 
Road  Co.   V.  Sanford,  17  Sup.  Ct.  198.) 

"When  a  valuation  is  placed  on  property,  which  has  become  aflfected 
with  a  public  use,  for  the  purpose  of  ascertaininp;  whether  the  maximum 
rate  of  compensation  fixed  by  law  for  its  use  is  reasonable  or  otherwise 


VALUE  OF  GOOD  WILL  139 

the  income  derived  therefrom  bj^  the  owner  before  it  was  subjected  to 
legislative  control  cannot  always  be  accepted  as  a  proper  test  of  value, 
because  the  charges  then  made  may  have  been  excessive  and  unreason- 
able. And,  when  the  property  has  been  capitalized  by  issuing  stock, 
neither  the  market  value  nor  the  par  value  of  the  stock  can  be  accepted 
in  all  cases  as  a  proper  criterion  of  value,  because  the  stock  may  not 
represent  the  money  actually  invested,  and  because  the  property  may 
have  been  capitalized  mainly  with  reference  to  its  income-producing 
capacity,  on  the  assumption  that  it  was  ordinary  private  property, 
which  the  owner  may  use  as  he  pleases,  without  being  subject  to  legis- 
lative control.  On  the  other  hand,  the  owner  is  entitled  to  the  benefit 
of  any  appreciation  in  value  above  original  cost  resulting  from  natural 
causes,  such  as  improvements  made  in  the  vicinity,  growth  of  the  town, 
etc."     (Getting  v.  Kansas  City  Stockyards  Go.,  52  Fed.  Rep.  851.) 


"It  camiot  be  said  that  a  corporation,  operating  a  public  highway,  is 
entitled  as  of  right,  and  without  reference  to  the  interests  of  the  public, 
to  realize  a  given  per  cent  upon  its  capital  stock.  When  the  question 
arises  whether  the  legislature  has  exceeded  its  constitutional  power  in 
prescribing  rates  to  be  charged  by  a  corporation  controlling  a  public 
highway,  stockholders  are  not  the  only  persons  whose  rights  or  interests 
are  to  be  considered.  The  rights  of  the  pubhc  are  not  to  be  ignored. 
It  is  alleged  here  that  the  rates  prescribed  are  unreasonable  and  unjust 
to  the  company  and  its  stockholders.  But  that  involves  an  inquiry  as 
to  what  is  reasonable  and  just  for  the  public.  If  the  establishing  of  new 
lines  of  transportation  should  cause  a  diminution  in  the  number  of 
those  who  need  to  use  a  turnpike  road,  and,  consequently,  a  diminution 
in  the  tolls  collected,  that  is  not,  in  itself,  a  sufficient  reason  why  the 
corporation  operating  the  road  should  be  allowed  to  maintain  rates 
that  would  be  unjust  to  those  who  must  or  do  use  its  property.  The 
public  cannot  properly  be  subjected  to  unreasonable  rates  in  order 
simply  that  stockholders  may  earn  dividends."  (Govington  and  L. 
Turnpike  Road  Go.  et.  al.  v.  Sanford  et.  al.,  17  Sup.  Gt.  205.) 

References  for  Good  Will,  Going  Concern,  Going  Value  and  Earn- 
ing Value.  —  Following  are  a  number  of  references  quoted  from 
court  cases,  mainly  decisions  of  the  United  States  Supreme  Court, 
and  opinions  of  prominent  engineer  writers  on  the  subject. 

"But  the  term  'good  will'  may  be  misleading.  Lord  Eldon  said  that 
good  will  is  nothing  more  than  the  probability  that  the  old  customers 
will  resort  to  the  old  place.  Grutwell  v.  Lye,  17  Ves.  Jr.  335.  See 
Flagg  Mfg.  Go.  V.  Holway,  178  Mass.  83,  59  N.  E.  667.  Under  any 
possible  definition,  it  involves  an  element  of  personal  choice.     Tliis 


140  EXGIXEERING  VALUATION 

phrase  is  inappropriate  where  there  can  be  no  choice.  So  far  as  the 
defendants'  sj^stem  is  'practically  exclusive,'  the  element  of  good  will 
should  not  be  considered."     (54  Atl.  Rep.  19.) 

"The  first  fact  essential  to  the  conclusion  of  the  court  below  is  the 
valuation  of  the  property  devoted  to  the  public  uses,  upon  which  the 
company  is  entitled  to  earn  a  return.  That  valuation  (§608,000)  must 
now  be  considered.  It  was  made  up  by  adding  to  the  appraisement, 
in  a  minute  detail  of  all  the  tangible  property,  the  sum  of  S10,000  for 
'organization,  promotion,  etc.,'  and  S60,000  for  Agoing  concern.'  The 
latter  we  understand  to  be  an  expression  of  the  added  value  of  the  plant 
as  a  whole  over  the  sum  of  the  values  of  its  component  parts,  which  is  attached 
to  it  because  it  is  in  active  and  successful  operation  and  earning  a 
return.  We  express  no  opinion  as  to  the  propriety  of  including  these 
two  items  in  the  valuation  of  the  plant,  for  the  purpose  for  which  it  is 
valued  in  this  case,  but  leave  that  question  to  be  considered  when  it 
necessarily  arises."  (Knoxville  v.  Knoxville  Water  Co.,  29  Sup.  Ct. 
Rep.  150.) 

"Going  value  may  therefore  be  defined  as  the  value  of  a  created  in- 
come, or,  to  put  it  in  the  language  of  the  theory  of  reproduction,  it  is 
the  cost  of  reproducing  a  given  income. 

"  Therefore,  in  using  the  theory  of  reproduction,  it  is  as  proper  and  just 
to  estimate  the  cost  of  reproducing  the  income  of  the  going  plant  and 
property  as  the  cost  to  reproduce  its  pumps,  its  pipes  or  its  structures. 

"Thoughtful  consideration  of  going  value  shows  that  it  has  no  exist- 
ence without  earnings ;  it  is  inherently  derived  from  consideration  of 
the  efforts  to  create  revenues.  Thus,  a  plant  may  be  losing  money 
and  still  have  a  going  value,  for  so  long  as  it  earns  anything  at  all  it 
has  some  revenue  which  ordinarily  it  would  cost  something  to  reproduce, 
but  when  a  plant  ceases  to  operate,  its  structural  value  may  be  said  to 
die  with  its  going  value." 

"Going  value,  unlike  depreciation,  has,  whore  it  exists  at  all,  been 
bought  largely  if  not  wholly  by  cash  outlay.  It  is  not  an  unearned  in- 
crement or  a  theoretical  accretion  from  causes  outside  the  ledger  of 
the  operating  plant,  except  perhaps  in  one  item,  viz.  opportunity 
to  earn  during  duplication.  After  duplication  is  completed,  going 
value  is  paid  for  in  cash  outlay  to  meet  fixed  charges  and  operating 
expenses  that  are  not  earned,  and  which  often  require  expenditure  to  a 
greater  extent  than  the  going  value  will  be  worth  in  years  to  come." 
(John  W.  Alvord,  in  Am.  Waterworks  Assoc,  June,  1909,  page  189.) 

"In  this  connection  the  UTiter  desires  to  emphasize  the  point  that 
(,'ciuitaljle  net  earnings  must  be  dependent  upon  the  characteristics 
and  value  of  the  physical  property,  and  that  being  the  case,  there  is 
so  intimate  a  relation  between  going  concern  value  based  upon  earnings 


VALUE   OF  GOOD   WILL  141 

and  value  of  physical  property  that  some  simple  rule  might  he  deviscKl 
by  which  going  concern  value  can  be  estimated  as  a  percentage  of  the 
value  of  the  physical  property  with  due  consideration  of  the  local  condi- 
tions. Perhaps  a  rule  of  this  kind  might  be  devised  which  would  bridge 
over  the  inconsistencies  and  inequalities  in  the  present  methods  of 
computing  going  concern  value,  harmonize  extreme  partisan  views  with 
regard  to  this  element  of  value,  and  eliminate  the  confusion  often 
arising  between  going  concern  value  and  franchise  value."  (Pages  235 
and  236,  John  W.  Alvord's  paper,  Am.  Waterworks  Assoc,  June,  1909.) 
"Original  cost  less  depreciation,  plus  what  is  known  as  the  'going' 
value.  This  latter  is  of  comparatively  recent  development,  but,  having 
much  to  commend  it,  now  has  the  sanction  of  many  high  authorities. 
It  is  the  value  such  a  plant  has  over  and  above  its  physical  value,  du£  to 
the  fact  that  it  is  not  a  bare  and  idle  syste?n,  but  it  is  in  actual  operation, 
doing  business  with  large  numbers  of  connected  customers.  It  is 
something  like  the  'good  wilV  of  a  business,  but  is  even  more  tangible, 
as  the  customers  have  expended  money  preparing  to  use  the  service 
and  are  not  likely  to  discontinue  it."  (Paper  by  W.  H.  Bryan  before 
Engineers'  Club  of  St.  Louis,  "Going  Value  as  an  Element  in  the  Ap- 
praisal of  Public  Utility  Properties.") 

"Now,  what  is  the  property  which  the  district  has  taken  by  the  power 
of  eminent  domain  ?  In  the  first  place,  it  is  a  structure,  pure  and  sim- 
ple, consisting  of  pipes,  pumps,  engines,  reservoirs,  machinery  and  so 
forth,  with  land  rights  and  water  rights.  As  a  structure  it  has  value, 
independent  of  any  use  or  right  to  use,  where  it  is  —  a  value  probably 
much  less  than  it  cost,  unless  it  can  be  used  where  it  is ;  that  is,  unless 
there  is  a  right  so  to  use  it.  Nevertheless,  it  has  value  as  a  structure. 
But,  more  than  this,  it  is  a  structure  in  actual  use ;  a  use  remunerative 
to  some  extent.  It  has  customers.  It  is  actually  engaged  in  business. 
It  is  a  going  concern.  The  value  of  the  structure  is  enhanced  by  the 
fact  that  it  is  being  used  in,  and  in  fact  is  essential  to,  a  going  concern 
business.  We  speak  sometimes  of  a  going  concern  value  as  if  it  is  or 
could  be  separate  and  distinct  from  structure  value  —  so  much  for 
structure  and  so  much  for  going  concern.  But  this  is  not  an  accurate 
statement.  The  going  concern  part  of  it  has  no  existence  except  as  a 
characteristic  of  the  structure.  If  no  structure,  no  going  concern.  If 
a  structure  in  use,  it  is  a  structure  whose  value  is  affected  bj'  the  fact 
that  it  is  in  use.  There  is  only  one  value.  It  is  the  value  of  the 
structure  as  being  used.  That  is  all  there  is  of  it."  (Brunswick  and 
Topham  Water  District  v.  Maine  Water  Co.,  Sup.  Jud.  Ct.  of  IMaine, 
Dec  14,  1904,  59  Att.  Rep.  639.) 

The  Wisconsin  Railroad  Commission,  in  its  recent  findings  in 
the  case  of  Payne  and  others,  of  Marinette,  against  the  Wis- 
consin Telephone  Company,  states: 


142  EXGIXEERIXG  VALUATION 

"If  property  is  devoted  to  the  public  use  and  reasonable  care 
has  been  exercised  in  all  the  phases  of  its  management,  but  the  owners 
have  not  yet  received  a  fair  return  during  the  earlier  years  of  the 
operation  of  the  plant  in  which  the  property  is  used  for  the  convenience 
of  the  public,  the  deficits  thus  incurred  must  be  made  up  out  of  later 
earning  in  so  far  as  this  is  commercially  possible  and  expedient." 

"It  has  been  held  by  experts  that  'going  value'  should  be  allowed 
as  so  much  per  customer,  or  as  a  percentage  of  the  receipts,  and  some 
have  considered  it  of  as  great,  if  not  greater,  importance  than  the 
physical  value  of  the  plant.  The  Commissio7i  holds  tliat  the  actual 
reasonably  wise  expenditure  of  money  towards  getting  the  business  of  tlie 
plant  established  may  be  included  in  the  value  to  be  allowed  for  the  purpose 
affixing  rates.  Since  no  plant  pays  at  the  outset,  and  the  first  years  of 
operation  arc  almost  invariably  accompanied  by  losses  or  necessary 
deficits,  the  Commission  holds  that  such  losses  may  be  said  to  represent 
the  cost  of  securing  an  established  or  going  business,  and  as  such  may 
be  included  in  the  value  or  investment  upon  which  the  rates  for  public 
service  shall  be  fixed.  But  the  converse  of  the  rule  also  holds;  that 
is,  if  a  plant  has  in  the  past  earned  more  than  a  reasonable  return, 
possiblj'^  tlirough  the  toleration  of  excessive  rates,  the  excess  over 
reasonable  earnings  may,  under  certain  conditions,  be  subtracted  in 
determining  the  present  value  of  the  plant.  That  is,  a  'going value' 
may  be  negative.  In  the  case  of  the  Marinette  Telephone  Company 
for  example,  the  Commission  found  upon  its  investigation  of  the  finan- 
cial history  of  the  company  that  through  a  period  of  recent  years  the 
company  had  been  enjoying  a  sufficiently  high  rate  of  return  to  write 
off  the  early  deficits  in  so  far  as  such  deficits  might  be  allowed  as  going 
value." 

"We  are  also  of  opinion  that  it  is  not  a  case  for  a  valuation  of  'good 
will.'  The  master  combined  the  franchise  value  with  that  of  good 
will,  and  estimated  the  total  value  at  §20,000,000. 

"  The  complainant  has  a  monopoly  in  fact,  and  a  consumer  must  take 
gas  from  it  or  go  without.  He  will  resort  to  the  'old  stand'  because  he 
cannot  get  gas  an\nvhere  else.  The  court  below  excluded  that  item 
and  we  concur  in  that  action."  (Willcox  v.  Consolidated  Gas  Co.,  29 
Sup.  Ct.  Rep.  192.) 

"In  view  of  the  attitude  of  the  Federal  Courts  in  the  Consolidated 
Gas  Case,  and  the  language  of  the  lower  court  in  disallowing  the  item 
of  'good  \vill,'  which  judgment  was  sustained  by  the  Supreme  Court,  it 
is  very  evident  that  any  attempt  to  fix  arbitrarily  a  value  on  such  an 
item  in  an  appraisal  is  not  likely  to  be  supported  successfully.  The 
grounds  named  Ijy  the  Court  are : 

"Tangible  property  has  a  value  apart  from  any  franchise  or  good 
will  value. 


VALUE  OF  GOOD  WILL  143 

"The  franchise,  conferring  the  jjrivilege  to  be  a  corporation,  to  use 
pubHc  property,  to  be  free  from  competition,  and  to  enjoy  many  otlier 
privileges,  has  some  value  apart  from  tangible  property. 

"Good  will  can  have  no  existence  as  apart  from  or  detached  from  the 
franchise  conferring  the  necessary  privilege.  Such  good  will  (by  itself) 
is  not  capable  of  being  capitalized  and  distributed  among  stock- 
holders. 

"Citizens  are  entitled  to  have  gas  (or  water)  because  they  pay  for  it, 
exactly  as  they  are  entitled  to  have  clean  streets  (and,  in  the  same  way, 
police  protection  or  fire  protection),  because  they  pay  taxes  among  other 
things  for  that. 

"The  Court,  therefore,  finds  that  there  is  no  good  will  value  in  connec- 
tion with  the  gas  business  in  the  city  of  New  York,  although  it  is  said, 
elsewhere  in  the  finding,  that  it  is  the  best,  most  favorably  located, 
and  most  prosperous  business  of  its  kind  in  the  countr3\" 

(H.  E.  Riggs's  paper,  "The  Valuation  of  Pul)lic  Service  Property," 
pp.  1525-1526.     Am.  Soc.  C.  E.,  November,  1910.) 

Judge  Lurton,  in  the  Omaha  Waterworks  Case,  says : 
"That  kind  of  good  will,  as  suggested  in  Willcox  v.  Consolidated  Gas 
Co.,  is  of  little  or  no  commercial  value  when  the  business  is,  as  here, 
a  natural  monopoly  with  which  he  must  deal,  whether  he  will  or 
no." 


II  I, 


'  Going  Concern '  Values.  Professor  Mead  defines  this  as  the  value 
due  to  the  fact  that  a  plant  has  consumers  actually  utilizing  its  product, 
and  that  it  is  in  actual  and  successful  operation  and  has  its  business 
developed.  This  value  is  the  worth  of  the  plant  in  excess  of  a  similar 
plant  without  connections,  and  constitutes  an  asset  in  the  consideration 
of  its  physical  value.  Mr.  Alvord  has  used  the  term  'connected  good 
will '  as  applicable  to  this  element  of  value. 

"The  writer  does  not  concede  that  'going  concern '  is  a  proper  element 
to  consider  in  the  physical  value,  as  it  does  not  represent  any  part  of  the 
cost  chargeable  to  capital,  and  the  physical  valuation  should  be  con- 
fined to  the  determination  of  capital  invested. 

"It  has  already  been  argued  that  to  the  phj^sical  property  as  in- 
ventoried should  be  added  proper  figures  to  cover  organization,  legal 
expense,  administration,  engineering,  and  contingencies.  All  these 
items  are  in  the  natm-e  of  additions  on  account  of  the  fact  that  the 
property  is  a  'going  concern.'  It  is  maintained  that  these  costs 
should  carry  to  the  present  value  column  as  values,  for  the  reason 
that  all  these  services  rendered  in  connection  with  the  creation  of  the 
property  remain,  unimpaired  in  value,  as  long  as  the  property  is  oper- 
ated. When,  however,  a  property  ceases  to  be  operated,  and  is  aban- 
doned and  dismantled,  not  only  do  all  these  elements  absolutely  dis- 


144  ENGINEERING  VALUATION 

appear,  but  also  all  increments  of  value  by  reason  of  the  special  use 
of  the  ])roperty  wiped  out,  and  there  exist  only  a  lot  of  partly  worn  out 
and  partly  obsolete  scrap  values,  buildings  constructed  for  a  purpose 
which  renders  them  unfit  for  other  use,  and  land  jiartl}^  salable  at 
going  prices  and  much  that  will  not  sell  at  all. 

"As  long  as  a  gas  works,  a  waterworks,  or  a  railroad  is  in  operation 
and  earning,  it  is  a  'going  concern,'  and  all  increments  which  attach 
to  its  physical  property  as  a  whole  continue  to  exist,  even  if  the  physical 
value  of  the  property  is  greater  than  a  fair  value.  That  fair  value 
can  be  determined  and  reached  by  means  of  a  negative  non-physical 
value. 

"In  view  of  these  things,  it  would  seem  to  be  highly  improper  to 
add  to  physical  value  anything  more  for  'going  concern.'  In  the 
final  report  of  U.  S.  Judge  R.  W.  Tayler,  Arbitrator  in  the  Cleveland 
Street  Railway  matter,  in  December,  1909,  the  following  language 
supports  the  above  contention  : 

"  I  allow  nothing  for  going  value,  except  in  so  far  as  that  is  the  result 
of  the  necessary  expenditure  of  money  in  building  the  road,  acquiring 
its  land,  power  houses,  and  equipment,  and  putting  them  into  success- 
ful operation.  The  expenditures  for  these  purposes  are,  and  necessarily 
must  be,  included  in  the  valuation  of  the  physical  propert^^"  (H.  E. 
Riggs,  "The  Valuation  of  Public  Service  Corporation  Properties,"  Am. 
Soc.  C.  E.,  November,  1910,  p.  1522.) 

One  of  the  best  examples  of  the  value  of  "good  wdll"  is  that 
of  a  successful  newspaper.  The  value  of  the  phj'sical  plant  for 
producing  a  Metropolitan  daily  paper  is  very  small  indeed  com- 
pared with  the  cash  value  of  the  successful  paper  itself.  A  news- 
paper is  built  up  by  the  ability  of  its  management  and  its  editors ; 
it  acquires  a  large  income  through  its  advertising,  and  its  adver- 
tising increases  with  the  increase  of  its  circulation.  Cases  are  on 
record  when  good  daily  papers  have  been  sold  at  public  auction 
and  have  brought  more  than  a  million  dollars,  the  physical  plant 
not  being  of  a  value  exceeding  twenty  or  thirty  per  cent  of  the 
amount  paid. 

This  excess  of  value  is  essentially  "good  will  "  rather  than  "go- 
ing concern"  for  the  reason  that  it  has  a  value,  quite  a  large  value, 
wliich  is  acquired  in  competition  with  other  like  properties. 

"The  two  factors  that  determine  the  actual  'going'  value  of  an}''  con- 
cern are  its  physical  plant  and  its  earnings.  It  has  been  argued  that 
the  earnings  of  railways  cannot  be  taken  into  account  in  making  valua- 
tions as  a  basis  of  rate  regulation  because  pr(>s(!nt  earnings  depend  on 
existing  rates  and  the  reasonableness  of  existing  rates  is  the  thing  to 


VALUE  OF  GOOD   WILL  145 

be  determined.  But  earnings  do  not  depend  entirely  on  rates.  They 
depend  also  on  the  amount  and  nature  of  the  traffic;  handled.  A  road 
with  a  dense  traffie  and  low  rates  may  have  larger  gross  and  net  earnings 
than  a  road  with  less  traffic  per  mile  and  higher  rates.  Therefore,  while 
commissions  may,  perhajis,  properly  disregard  earnings  in  making 
valuations,  because  earnings  depcnid  on  rates,  they  ought  to  give  weight 
to  density  of  traffic  because  nothing  could  be  plainer  than  that,  other 
things  being  equal,  a  road  with  a  heavy  traffic  has  more  value  per  mile 
than  one  with  a  light  traffic.  The  amount  of  traffic  a  road  has  alwaj'-s 
depends  largely  on  the  way  it  is  managed,  and  a  road  that  has  built 
up  a  large  traffic  deserves  the  wages  of  good  management."  (Railroad 
Age  Gazette,  March  5,  1909.) 

"Good  will,  an  established  organization,  and  a  loyal  esprit  de  corps 
are  expensive  to  acquire,  in  money  equivalent,  skill,  patience  and  talent ; 
and,  while  they  do  not  appear  on  the  balance  sheet  of  any  railway,  are 
nevertheless  things  of  real  value.  A  manufacturing  plant  with  an 
experienced  administrative  organization,  trained  and  disciplined  operat- 
ing staff  and  an  established  trade,  has  a  commercial  and  an  economic 
value  in  excess  of  a  new  and  similar  concern  of  corresponding  cost  and 
in  corresponding  physical  condition.  Is  the  case  affected  by  the 
public  nature  of  the  service  provided  by  carriers,  and  by  the  degree  of 
monopoly  they  enjoy  and  exercise?  In  respect  of  a  railway,  good 
will  and  organization,  as  an  inducement  to  patronage,  inure  to  its  ma- 
terial advantage ;  but  as  enabling  efficient  service,  economical  operation 
and  the  maintenance  of  revenues  notwithstanding  low  rates  and  fares, 
they  are  no  less  an  asset  in  the  hands  of  the  public."  (Railroad  Age 
Gazette,  Feb.  5,  1909.) 

Mr.  Wynkoop  Kiersted  says: 

"A  properly  designed,  well-constructed  and  thoroughly  maintained 
physical  property  is  the  foundation  of  all  values,  and  for  this  reason 
going  concern  value  cannot  depend  wholly  upon  earning  capacity  as 
separate  and  distinct  from  the  value  of  the  physical  property.  More- 
over, equitable  earning  capacity  depends  upon  equitable  rates,  and 
equitable  rates  depend  primarily  upon  the  fair  value  of  the  physical 
property.  Earning  capacity  and  going  concern  value,  franchise  value, 
patronage,  good  will,  and  any  of  the  elements  of  value  or  the  consider- 
ations which  go  to  make  a  successful  public  utility,  cannot  endure 
without  a  substantial,  well-maintained  and  developing  phj^sical  prop- 
erty. While,  in  fact,  structural  value  dies  with  the  loss  of  earnings, 
still  it  is  also  a  fact  that  there  can  be  no  substantial  or  permanent 
earning  capacity  without  a  substantial,  well-maintained,  well-organized 
and  well-managed  physical  property.  This  is  the  history  of  every 
public  utility ;  it  is  the  history  of  every  piece  of  property  artificially 
created  and  subject  to  the  wear  and  tear  of  continuous  use.     Moreover, 


146  EXGIXEERING  VALUATION 

two  pieces  of  physical  property  having  precisely  the  same  net  earnings, 
but  of  wide  variation  in  the  matter  of  the  cost  of  reproduction,  may 
have  a  variation  of  going  concern  value  distinct  and  separate  from 
the  variation  due  to  the  inequalities  of  the  cost  of  reproduction." 
(Page  235  of  paper  of  J.  W.  Alvord,  Ain.  Waterworks  Assoc,  June, 
1909.) 


CHAPTER  VIII 
DEPRECIATION 

The  term  depreciation  needs  to  be  defined  and  described.  Web- 
ster defines  it  as  the  "act  or  state  of  lessening  worth,"  and  if 
this  definition  is  assumed  to  be  the  correct  one,  then  any  and 
all  lessening  of  worth  is  to  be  termed  depreciation,  whether 
from  age,  or  decrepitude,  obsolescence,  inadequacy,  wear  and 
tear  or  lack  of  any  kind  of  maintenance.  At  the  time  of  an  ap- 
praisal all  these  forms  of  lessening  of  value  have  to  be  given  con- 
sideration as  depreciation,  but  from  an  accounting  standpoint 
depreciation  is  only  that  deterioration  of  an  object  that  cannot  be 
made  good  by  repairs,  but  requires  a  complete  renewal.  Obso- 
lescence, inadequacy  and  supersession,  being  speculative  and 
prospective,  play  no  part  in  this  form  of  depreciation,  and  all 
other  deterioration  is  to  be  made  good  by  maintenance  and  is 
so  charged  on  the  books. 

In  connection  with  valuations  made  as  of  a  certain  date,  depre- 
ciation is  used  in  what  might  be  called  its  collective  sense;  that  is, 
all  forms  of  deterioration  in  value  are  to  be  brought  under  the 
term,  including  not  only  the  actual  and  permanent  lessening  of 
value  due  to  age  which  may  be  given  the  specific  name  of  decrepi- 
tude, but  depreciation  due  to  such  development  of  the  art  as 
calls  for  change  in  apparatus  in  order  to  improve  the  service 
and  bring  it  to  a  more  modern  and  efficient  standard,  termed 
specifically  obsolescence;  a  depreciation  due  to  the  growth  of  busi- 
ness to  such  an  extent  that  the  old  apparatus  is  no  longer  adequate 
for  the  purpose  and  must  be  replaced  or  superseded  by  larger 
units,  and  specifically  termed  inadequacy  or  supersession;  the 
ordinary  decrease  in  value  due  to  wear  and  tear  owing  to  the  regu- 
lar use.  and,  finally,  the  decrease  in  value  at  the  date  of  appraisal, 
due  to  lack  or  neglect  of  repairs  that  may  be  necessary  to  place 
the  apparatus  in  up-to-date  condition,  which  may  be  termed 
deferred  mai?itenance. 

In  an  appraisal,  the  determination  of  proper  rates  of  deprecia- 
tion is  purely  a  matter  of  judgment,  as  there  can  be  no  set  rules 

147 


148  ENGINEERING  VALUATION 

any  more  than  there  can  be  any  uniform  handling  of  the  same 
form  of  apparatus.  IManj^  engineers  and  a])praisers  have  assumed 
rates,  and  in  many  cases  they  agree  on  a  figure  which  may  be 
described  perhaps  as  a  good  average  to  be  used  on  the  article  under 
consideration.  A  rate  set  for  age  or  decrepitude  would  be  con- 
trolled largely  by  the  time  at  which  it  is  judged  that  the  object 
will  become  obsolete,  or  the  time  at  which  it  may  be  inadequate. 
Rates  for  these  terms  are  matters  of  oj^inion  only  and  can  only 
be  made  according  to  the  best  judgment  of  the  appraiser.  Wear 
and  tear  can  be  found  nearly  always  on  the  books  of  the  owner, 
and  again  deferred  maintenance  is  determined  by  the  judgment 
of  the  appraiser  as  to  the  amount  required  to  put  the  article  in 
first  class  condition. 

As  an  examiDle  of  pure  depreciation,  the  horse  is  one  of  the 
best.  He  cannot  be  repaired  and  can  only  be  renewed ;  where 
large  numbers  are  used,  as  in  a  street  railway,  his  average  age 
can  nearly  always  be  determined  from  the  books  of  the  company. 

In  fact,  railroads  generally  take  the  stand  that  their  expendi- 
tures for  renewals  and  maintenance  have  become  equalized  so 
that  no  charge  is  made  on  the  books  for  a  general  depreciation. 
Thus  in  case  of  an  appraisal,  the  last  two  items,  viz.  wear  and  tear 
and  deferred  maintenance,  at'  the  date  would  be  the  only  ones 
necessary  to  calculate,  and  these  would  be  represented  by  an  esti- 
mate of  what  it  would  cost  to  put  the  property  into  thoroughly 
up-to-date  condition.  Even  then  it  would  be  necessary  to  deter- 
mine what  could  be  considered  an  up-to-date  condition,  and  this 
also  would  be  stated  in  a  percentage  of  the  total  value,  or  of  the 
total  value  of  the  various  classes  of  property.  No  property  can 
ever  have  a  physical  value  equal  to  its  first  cost,  that  is,  basing  the 
prices  on  those  originally  paid,  but  starts  to  deteriorate  and  wear 
out  the  minute  it  is  installed,  and  as  it  can  never  have  repairs  or 
renewals  applied  all  at  the  same  time,  there  is  always  some  part 
in  disrepair  to  a  greater  or  less  degree.  In  Chicago  this  condi- 
tion has  been  recognized  by  the  Board  of  Supervising  Engineers 
of  the  traction  systems,  and  the  board  states  that  after  rehabili- 
tating the  entire  properties,  they  shall  be  maintained  at  85  per 
cent  of  their  original  cost  to  construct.  This  percentage  is  about 
as  high  as  it  is  fair  to  require  a  public  utility  property  to  be  main- 
tained. As  this  book  is  written  about  valuations  and  not  from 
the  bookkeeping  standpoint,  it  is  the  second  or  practical  definitioii 
of  dejjreciation  that  will  be  made  use  of. 


DEPRECIATION  149 

The  truth  is  that  the  subject  of  depreciation  and  proper  cliarges 
therefor,  correct  basis  for  calculating,  and  incidentally  tlu;  han- 
dhng  of  the  bookkeeping  end  have  not  been  given  due  considera- 
tion in  the  past,  and  have,  in  fact,  but  recently  been  brought 
seriously  to  the  attention  of  cor]iorations.  A  quotation  from  a 
decision  of  the  United  States  Supreme  Court  in  the  Knoxville 
water  case  will  show  how  seriously  it  must  be  considered  in  the 
future. 

"A  water  plant,  with  all  its  additions,  begins  to  depreciate  in  value 
from  the  moment  of  its  use.  Before  coming  to  the  question  of  profit 
at  all  the  company  is  entitled  to  earn  a  sufficient  sum  annually  to 
provide  not  only  for  current  repairs,  but  for  making  good  the  deprecia- 
tion and  replacing  the  parts  of  the  property  when  they  come  to  the  end 
of  their  life.  The  company  is  not  bound  to  see  its  property  gradually 
waste,  without  making  provision  out  of  earnings  for  its  replacement. 
It  is  entitled  to  see  that  from  earnings  the  value  of  the  property  in- 
vested is  kept  unimpaired,  so  that,  at  the  end  of  any  given  term  of 
years,  the  original  investment  remains  as  it  was  at  the  beginning.  It 
is  not  only  the  right  of  the  company  to  make  such  a  provision,  but  it  is 
its  duty  to  its  bond  and  stock  holders,  and,  in  the  case  of  a  public  service 
corporation,  at  least,  its  plain  duty  to  the  public.  If  a  different  course 
were  pursued  the  only  method  of  providing  for  replacement  of  property 
which  has  ceased  to  be  useful  would  be  the  investment  of  new  capital 
and  the  issue  of  new  bonds  or  stocks.  This  course  would  lead  to  a 
constantly  increasing  variance  between  present  value  and  bond  and 
stock  capitalization,  —  a  tendency  which  would  inc^vitably  lead  to 
disaster  either  to  the  stockholders  or  to  the  public,  or  both.  If,  however, 
a  company  fails  to  perform  this  plain  duty  and  to  exact  sufficient 
.  returns  to  keep  the  investment  unimj^aircd,  whether  this  is  the  result 
of  unwarranted  dividends  upon  overissues  of  securities,  or  of  omission 
to  exact  proper  prices  for  the  output,  the  fault  is  its  own.  When, 
therefore,  a  public  regulation  of  its  prices  comes  under  question,  the 
true  value  of  the  property  then  employed  for  the  purpose  of  earning  a 
return  cannot  be  enhanced  by  a  consideration  of  the  errors  in  manage- 
ment which  have  been  committed  in  tlie  past."  (Knoxville  v.  Knox- 
ville Water  Co.,  29  Sup.  Ct.  152.) 

The  following  extract  from  Treasury  Decisions  on  account  of 
Internal  Revenue  shows  how  depreciation  must  be  handled  in 
bookkeeping  on  account  of  the  Special  Excise  Tax. 

DEPRECIATION 

83.    Depreciation  to  be  an  allowable  deduction  in  the  return  of 
annual  net  income  of  a  corporation  must  be  charged  off  on  the  ledger 


150  EXGIXEERIXG  VALUATION 

of  the  corporation,  so  as  to  show  a  reduction  in  the  capital  assets  of 
the  corporation  to  the  extent  of  the  depreciation  claimed. 

84.  Deduction  on  account  of  depreciation  of  property  must  be 
based  on  lifetime  of  property,  its  cost,  value,  and  use,  and  must  be 
evidenced  by  a  ledg(>r  entry  and  a  like  reduction  in  the  i)lant  and  prop- 
ertj^  account  with  respect  to  wliich  the  depreciation  is  claimed. 

85.  In  the  case  of  corporations  owning  stocks  and  bonds  or  other 
securities,  if  an  annual  adjustment  of  the  value  of  such  securities  is 
made  and  the  adjusted  values  made  a  matter  of  ledger  entry,  the  ap- 
preciation of  such  securities  as  so  entered  must  be  accounted  for  as 
income,  and  the  depreciation  may  be  deducted  from  gross  income.  If 
no  annual  adjustment  is  made,  and  the  securities  are  carried  from  year 
to  year  as  a  permanent  investment,  there  will  be  neither  gain  nor  loss, 
as  to  the  principal  of  such  securities,  until  the  same  shall  liaA-e  been  dis- 
posed of,  when  the  gain  or  loss  as  compared  with  the  original  cost  shall 
be  prorated,  and  the  amount  of  such  gain  or  loss  apportioned  to  the 
years  since  the  incidence  of  the  tax,  to  wit,  January  1,  1909,  shall  be 
added  to  or  deducted  from  the  gross  income  of  the  year  in  wliich  the 
securities  were  disposed  of. 

86.  Where  increase  or  decrease  during  the  j'ear  in  the  value  of  real 
estate  acquired  in  previous  years,  sold  or  held  for  sale,  is  taken  up  on 
the  books  and  the  rate  cannot  be  accurately  determined  with  respect 
to  individual  years,  such  increase  or  decrease  may  be  prorated  as  pro- 
vided by  regulations  in  cases  of  sale  of  capital  assets. 

87.  Premiums  on  stocks  and  bonds  arbitrarily  charged  off  on  the 
books  of  a  corporation  do  not  constitute  a  proper  deduction  on  ac- 
count of  depreciation,  unless  there  shall  have  been  an  actual  slirinkage 
in  value  of  such  stocks  and  bonds  to  the  extent  of  the  deduction  claimed 
during  the  j^ear  for  which  the  return  is  made. 

88.  Net  income  on  uncompleted  contracts  may  be  estimated  on  the 
basis  of  the  percentage  of  the  work  completed  as  compared  with  the 
contract  price  of  the  whole  work. 

89.  Cost  of  drilling  new  wells  b}^  oil  corporations  is  considered  bet- 
terments and  additions  to  the  capital  assets  of  the  corporation.  The 
expense  of  drilling  dry  wells  may,  however,  be  charged  to  profit  and 
loss. 

90.  Discounts,  other  than  bank  discounts  on  notes  executed  by  a 
corporation,  should  be  segregated  from  the  interest  item  on  the  return, 
and  should  be  included  under  expenses,  item  4. 

91.  The  mere  removal  of  timber  by  cutting  from  timber  lands,  un- 
less the  timber  is  otherwise  disposed  of  through  sales  or  plant  opera- 
tions, is  considered  sim])ly  a  change  in  form  of  assets.  If  said  timber 
is  disposed  of  through  sales  or  otherwise,  it  is  to  be  accounted  for  in  ac- 
cordance with  regulations  governing  disposition  of  capital  and  other 
assets. 


DEPRECIATION  151 

92.  Deduction  on  account  of  depreciation  of  property  must  he  based 
on  lifetime  of  property,  its  cost,  value,  and  use. 

93.  Loss  due  to  voluntary  removal  of  buildings,  etc.,  incident  to  im- 
provements is  either  a  proper  charge  to  the  cost  of  the  new  additions 
or  to  depreciation  already  provided,  as  the  facts  may  indicate,  but  in 
no  case  is  it  a  proper  deduction  in  determining  net  income,  except  as 
it  may  be  reflected  in  the  reasonable  amount  allowable  as  a  deduction 
for  depreciation. 

94.  Depreciation  of  company's  stock  is  a  loss  to  the  stockholders,  but 
not  a  loss  to  the  company  issuing  the  same,  and  therefore  not  a  proper 
deduction.     (Internal  Revenue  T.  D.  1742,  Dec.  15,  1911.) 

Depreciation  in  Factories.  —  Factories  are  subject  to  substan- 
tially the  same  rules  for  depreciation  as  are  public  utilities,  if 
there  can  be  said  to  be  rules,  and  it  is  just  as  difficult  to  fix  rates 
for  them.  Perhaps  the  term  de-preciation  would  better  be  defined 
when  used  in  connection  ^vith  factories  as  "diminution  of  value  by 
reason  of  wear  and  tear,"  but  it  covers  many  other  contingencies 
as  well.  In  factories,  depreciation  can,  with  difficulty,  be  sepa- 
rated from  maintenance,  and  theoretically  one  can  be  used  to 
balance  the  other.  In  practice  there  are,  however,  plants  in  which 
rej^airs  can  be  said  to  exactly  balance  depreciation,  one  when  the 
life  of  plant  is  so  short  that  it  has  to  be  renewed  entire  at  very 
short  intervals,  and  another  where  the  plant  is  so  large  that,  as  in 
a  large  railroad  system,  the  renewals  or  repairs  after  a  while  be- 
come so  equalized  that  it  is  not  necessary  to  make  any  specific 
charge  for  depreciation,  as  replacements  will  become  so  regu- 
lar and  the  business  so  permanent  as  to  have  little  need  for 
such  an  account.  Still,  in  any  factory,  no  matter  \\o\\  large, 
unless  there  are  additions  to  plant  the  renewals  no  matter  how 
equaUzed  seldom  can  be  made  to  keep  the  plant  up  to  the  standard 
in  value,  and  for  this  reason  surplus  earnings  should  be  devoted 
to  such  an  increase  in  plant  as  will  always  maintain  the  capital 
intact,  no  matter  what  the  depreciation. 

In  national  or  municipal  plants  of  any  kind,  it  is  seldom  con- 
sidered necessary  to  have  a  depreciation  account,  all  renewals 
are  treated  as  any  other  expense  and  covered  by  the  budget  each 
year.  This  is  somewhat  of  a  fallacy  and  is  the  cause  of  many 
acrimonious  disputes  between  municipal  authorities  and  the  advo- 
cates of  private  plants  for  producing  the  same  output.  In  some 
states,  the  public  utilities  commissions  set  a  rate  of  depreciation 
to  be  charged  on  municipal  plants. 


152  ENGINEERING  VALUATION 

Depreciation  of  Railroads.  —  Opinions  on  the  depreciation  prop- 
erl}'  chargeable  to  railroads  are  as  many  and  as  widely  diversified 
as  are  those  regarding  the  physical  valuation.  Roughly  speaking, 
they  may  be  divided  into  three  classes,  of  which  that  of  Professor 
H.  C.  Adams,  Statistician  of  the  Interstate  Commerce  Commis- 
sion, represents  the  first.  Quoting  from  a  paper  read  by  Herbert 
G.  Stockwell  at  the  Convention  of  the  Association  of  Chartered 
Accountants  at  Denver: 

"'Professor  Adams  thinks  that  when  carried  to  the  final  analysis, 
the  question  of  the  formal  depreciation  charges  to  operating  expenses 
is  simply  a  question  of  what  constitutes  cost  of  operation,  and  the  time 
when  such  cost  shall  be  acknowledged  in  the  accounts ;  and  that, 
through  the  use  of  that  asset  in  operation,  there  is  created  an  item  in  the 
cost  of  operations  which  should  be  reflected  in  the  accounts  when  the 
effect  of  such  depletion  takes  place ;  and  that  a  statement  of  net  revenue 
made  without  including  this  element  of  cost  in  operating  expenses,  is 
an  erroneous  statement. '^ 

"And  again,  the  opposite  view  appears  to  be  represented  by  Mr.  Fred- 
erick A.  Delano,  president  of  the  Wabash  Railroad,  who,  in  an  interest- 
ing pamplilet  on  the  'Application  of  Depreciation  Charges  in  Railway 
Accounting,'  thinks  that  there  is  practically^  no  depreciation  in  a  rail- 
road for  the  reason  that  a  thorough  overhauling  of  various  parts  of 
equipment  is  made  periodically,  at  which  time  they  are  restored  to  a 
condition  as  good  as  new.  He  further  argues  that  the  appreciation  of 
the  value  of  the  railroad,  due  to  the  opening  up  of  new  territory,  and  the 
gradual  increase  in  business,  on  the  average,  is  more  than  the  deprecia- 
tion, and  points  out  that  the  present  capitalization  of  the  American 
railroads  on  a  mileage  basis,  after  deducting  the  stocks  and  bonds  of 
one  corporation  owned  by  another  so  as  to  a^^oid  duplication  of  figures, 
is  shown  by  the  most  recent  investigation  of  the  Interstate  Commerce 
Commission  to  be  only  shghtly  more  to-day  than  it  was  twenty  or 
thirty  years  ago,  which,  according  to  his  view,  is  evidence  that  many 
railroads  have  charged  many  betterments  and  improvements  either  to 
operating  expenses  or  income  account. 

"The  third  view  is  advanced  by  Daniel  Royes,  assistant  editor-in-chief 
of  the  Railway  Age,  in  an  article  appearing  in  the  April  25,  1908,  copy 
under  the  title  'Depreciation  Electric  Railway  Accounting.'  He 
recognizes  that  there  is  a  depreciation,  which  he  describes  as  follows  : 

"'Depreciation  is  that  deterioration  of  the  physical  property  which 
is  not  made  good  by  current  repairs.'  He  further  states:  'The 
depreciation  of  equipment  which  ultimately  results  in  the  need  for  re- 
newals is  an  accrued  liability,  and  should  have  a  place  in  the  balance 
sheet.  This  being  true,  the  corresponding  debits  should  appear  some- 
where in  the  accounts.' 


DEPRECIATION  153 

"  He  thinks,  however,  that  they  should  be  made  to  income  and  not  to 
operating  expenses,  for  the  reason  that  depreciation  is  not  an  exjiense, 
because  it  may  not  involve  the  payment  of  money,  and  second,  because 
depreciation  goes  on  independent  of  operation.  Especially  is  the  latter 
true  of  that  class  of  depreciation  caused  by  advancement  of  the  arts, 
sometimes  designated  as  that  due  to  obsolescence  or  supersession.  It 
seems  that  his  idea  is  to  have  set  aside  a  portion  of  the  income  to  a  de- 
preciation reserve  account : 

'"This  need  not  curtail  the  payment  of  dividends,  but  if  dividends 
are  paid,  these  entries  will  perform  the  important  function  of  showing 
the  stockholder  that  his  dividends  have  come  out  of  capital  and  not 
out  of  profits,  and  show  the  bondholder  that  his  security  is  being 
impaired.' 

" '  Some  of  those  who  have  criticized  the  Interstate  Commerce  Com- 
mission's order  have  urged  that  any  arbitrary  amount  charged  off 
montlily  would  probably  produce  reserves  within  any  given  time  within 
the  contemplation  of  those  estimating  the  life  of  the  machine,  greater 
than  the  total  value  of  the  machine.  In  other  words,  the  reserve  finally 
will  be  greater  than  the  value  of  the  plant.  It  is  not  contemplated  by 
the  commissioners,  as  I  understand  it,  that  a  certain  fixed  amount  once 
calculated  must  be  adhered  to.  If  any  amount  of  depreciation  charged 
off  periodically  proves  too  large,  a  reduction  in  the  amount  can,  and 
should  be  made  in  order  that  the  actual  depreciation  will  fit,  as  nearly  as 
human  judgment  can  make  it  fit,  with  the  actual  physical  wearing 
out  of  the  machine.  The  president  of  one  of  the  railroads  says  that 
after  the  first  ten  years  there  is  practically  no  depreciation  in  the  equip- 
ment, as  it  is  maintained  through  repairs.  Conceding  that  this  is  true, 
then  the  annual  amount  of  depreciation  would  be  slight,  but  it  is 
ine\itable  that  it  is  something,  for  the  reason  that  sooner  or  later,  each 
article  of  equipment  is  replaced  by  others.'  " 

In  the  classification  of  operating  expenses  as  prescribed  by  the 
Interstate  Commerce  Commission  in  accordance  with  Section  20 
of  the  Act  to  Regulate  Commerce,  third  revised  issue,  on  page  10, 
Professor  Henry  C.  Adams,  in  charge  of  statistics  and  accomits, 
has  the  following  to  say : 

"  Consideration  of  Depreciation.  A  number  of  points  have  been 
raised  by  correspondents  relative  to  depreciation  that  call  for  the  follow- 
ing general  statements,  all  of  which  bear  upon  the  manner  in  which 
depreciation  accounts  should  be  treated  : 

"  1.  The  question  of  depreciation  is  fundamentally  a  question  of 
value,  and  not  a  question  of  maintaining  the  original  capacity,  or  a 
standard  of  operating  efficiency,  or  of  keeping  full  the  numbers  in  equip- 
ment series. 


154  ENGIXEERIXG  VALUATION 

"  2.  The  depreciation  rules  may  be  worked  either  on  the  basis  of  the 
value  of  individual  cars  and  locomotives,  or  on  the  basis  of  the  value 
of  series  of  cars  and  locomotives.  On  this  point  accounting  officers  are 
at  liberty,  until  advised  to  the  contrary,  to  follow  whichever  method 
seems  to  them  the  more  appropriate. 

"  3.  The  basis  of  accumulation  —  that  is  to  say,  the  amount  to 
which  the  percentage  rate  is  applied  —  ought,  in  strict  theory,  to  be 
the  original  cost.  For  the  current  year,  however,  accounting  officers 
are  at  liberty  to  accept  original  cost  (estimated,  if  not  known),  record 
value,  or  purchase  price.  The  term  '  record  value '  should  not  be 
interpreted  to  mean  the  value  of  the  equipment  as  it  stands  in  the  capital 
account  (unless  that  account  represents  the  original  value  of  the  equip- 
ment on  hand),  but  the  actual  cost  or  value  of  all  equipment,  re- 
gardless of  where  charged  when  purchased ;  and  in  case  purchase 
price  be  accepted  as  the  basis  of  the  percentage  charge  to  deprecia- 
tion, the  percentage  rate  should  be  limited  to  the  rate  required  to 
replace  the  price  paid.  A  second-hand  locomotive,  for  example,  is 
not  called  upon  to  provide  for  its  replacement,  when  abandoned,  by  a 
new  locomotive.  As  stated  above,  it  is  values  and  not  locomotives 
wath  which  depreciation  charges  deal. 

"  4.  The  application  of  depreciation  charges  for  the  current  year  and 
subsequent  years  must  not  be  influenced  b}'  the  practice  of  j^ears  past. 
In  case  property  has  been  appreciated  by  excessive  charges  to  operating 
expenses  in  years  past,  the  value  thus  placed  in  the  property  must  be 
regarded  as  a  permanent  undivided  asset  to  the  stockholders.  On  the 
other  hand,  in  case  property  has  depreciated  on  account  of  insufficient 
charges  to  operating  expenses  in  years  past,  this  fact  must  not  be  per- 
mitted to  influence  the  determination  of  the  depreciation  rate  for  the 
current  year. 

"5.  The  monthly  charges  to  operating  expenses  for  'depreciation' 
on  the  several  classes  of  equipment  will,  of  necessity,  create  or  require 
corresponding  liability  accounts  to  which  such  depreciation  may  be 
credited.  To  that  end,  carriers  will  be  required,  beginning  July  1,  1907, 
to  set  up  an  appropriate  liability  depreciation  account  for  each  of  the 
several  classes  of  equipment  upon  which  depreciation  is  charged." 

"  These  accounts  should  be  designated  as  follows  : 

"  (a)  Locomotives  —  Replacement. 

"  (6)  Passenger  Train  Cars  —  Replacement. 

"  (c)  Freight  Train  Cars  —  Replacement. 

"  (d)  Electric  r>|uipment  of  Cars  —  Replacement. 

"  (e)  Floating  Equii)ment  —  Replacement. 

"  if)  Working  Equipment  —  Replacement. 

"To  these  replacement  accounts  should  be  credited  monthly  the 
amount  of  accrued  depreciation  on  each  class  of  equipment,  resi)cctivel3\ 


I 


DEPRECIATIOX  1 55 

Such  credits  should  invariably  equal  the  gross  charges  to  maintenance 
for  depreciation. 

"To  these  several  replacement  accounts  under  their  appropriate 
heads  should  be  charged,  at  cost,  all  equipment  purchased,  built  or 
otherwise  acquired  for  the  purpose  of  maintaining  the  value  of  a 
carrier's  equipnunit. 

"The  monthly  charges  to  operating  expenses  for  'renewals'  of  the 
several  classes  of  equipment  will  be  similarly  treated. 

"It  is  not  intended  that  these  accounts  should  be  restricted  to  in- 
dividual cars  or  locomotives,  or  that  carriers  are  not  at  liberty  to  renew 
or  replace  equipment  upon  which  depreciation  has  accrued  prior  to 
the  retirement  of  such  equipment.  On  the  other  hand,  the  several 
amounts  standing  to  the  credit  of  those  replacement  accounts  should 
be  available  to  carriers  for  the  purpose  of  replacement  of  equipment 
to  the  extent  of  such  credits ;  however,  all  replacements  in  excess  of 
such  credits  must  be  considered  as  betterments  or  additions,  and 
charged  either  to  income  or  to  capital." 

In  summing  up  the  law  bearing  upon  depreciation  in  his  paper, 
Mr,  Stockwell  says: 

"  (a)  All  common  carriers  must  show  depreciation  charges  in  reports 
to  the  Interstate  Commerce  Commission. 

"  (b)  In  some  states  public  service  corporations  must  show  depre- 
ciation in  their  reports  to  the  state  authorities. 

"  (c)  All  corporations  may  show  depreciation  as  deductions  from  in- 
come, in  their  reports  to  the  Commissioner  of  Internal  Revenue.  \\Tiile 
this  is  not  obligatory,  it  is  lawful  to  make  reasonable  deductions  for 
depreciation,  and  will  probably  be  attended  to  quite  universally. 

"  (d)  Regarding  dividends,  as  a  general  rule  corporations  may  pay 
dividends  without  providing  for  depreciation  unless  it  is  well  known  and 
extensive  enough  to  constitute  utter  disregard  of  the  maintenance  of 
the  property,  but  caution  should  be  exercised  in  such  i)ayment,  for 
the  reason  that  when  such  matter  is  brought  into  court  from  now  on,  the 
subject  of  depreciation  and  the  directors'  responsibility  therefor  is 
likely  to  be  more  intelHgently  presented  to  and  considered  by  the 
court." 

Definition  of  Terms,  or  Classes  of  Depreciation.  —  Decrepitude. 
All  apparatus  gradually  wears  out  by  age ;  it  starts  to  deteriorate 
the  minute  it  is  installed,  and  such  wearing  out  or  deterioration 
cannot  be  made  good  by  repairs,  but  only  by  complete  replace- 
ment, say  such  as  a  horse.  A  horse  cannot  be  repaired,  but  he 
must  be  replaced  when  worn  out  from  old  age.  The  wear  and 
tear  of  his  feet  can  be  made  up  by  constant  repairs,  but  old  age 


156  ENGINEERING  VALUATION 

cannot  be  repaired.  In  the  same  wa}^  a  car  body  becomes  so 
racked  by  use  that  screws  will  no  longer  hold,  the  wooden  parts 
become  so  decayed  that  it  is  no  longer  economy  to  repair  it,  and 
the  cost  of  maintenance  becomes  so  high  that  it  is  useless  to  re- 
tain the  car  in  service.  Such  depreciation  is  termed  decrepitude, 
a  word  somewhat  new  to  the  art  but  exactly  describing  the  true 
meaning  of  this  class  of  depreciation. 

Obsolescence.  This  term  means  a  depreciation  due  to  changes 
or  advances  in  the  art  which  renders  a  piece  of  apparatus,  or  a 
whole  class  of  it,  obsolete  and  uneconomical  of  use,  as  compared 
with  new  types  which  have  been  developed  at  a  later  date  and 
which  are  of  much  better  efficiency. 

This  item  is  ordinarily  so  much  larger  than  any  of  the  other 
forms  of  depreciation  that  the  term  of  life  as  dictated  by  the 
obsolescence  will,  in  many  cases,  control  the  rate  of  decrease  in  value. 
Depreciation  due  to  obsolescence  applies  particularly  to  street  rail- 
way apparatus,  for  in  few  industries  have  the  changes  and  advances 
been  so  rapid  as  in  the  transportation  systems  of  the  country.  The 
fact  is  that  there  are  few  industries  that  are  not  affected  by  obso- 
lescence, even  the  oldest  of  them.  Machinery  in  cotton  mills, 
one  of  the  oldest  and  most  stable  of  the  American  industries ; 
shoe  machinery,  and,  in  fact,  all  forms  of  manufactures,  —  are 
affected  by  the  changes  in  the  art,  the  improvement  in  machinery, 
and  in  methods. 

One  of  the  best  examples  of  this  form  of  depreciation  is  the  cable 
railway  formerly  in  use.  This  form  of  railway  was  originally 
designed  for  use  in  the  city  of  San  Francisco,  on  account  of  the 
very  steep  grades  of  many  of  the  streets  in  that  city.  These 
grades  are  so  steep  in  many  cases  as  to  be  quite  unsafe  for  any 
other  form  of  traction,  and  the  cable  is  still  in  use  there  and  prol)- 
ably  will  remain  for  some  time  to  come. 

Cable  traction  was  adopted  in  nearly  all  the  large  cities  of  the 
east  some  years  ago,  and  after  being  in  use  for  a  few  years  was 
replaced  by  electrically  propelled  cars.  In  two  places,  notably 
Washington  and  New  York,  use  was  made  of  the  subsurface  tube 
provided  for  the  cable,  for  placing  the  electrical  conductors,  but  in 
all  other  cities  the  subsurface  structure  was  torn  up  and  replaced 
with  a  much  heavier  railway  track.  This  change  of  motor  power 
entailed  great  expense,  which  in  most  cases  was  calmly  added  to 
capital,  and  in  many  cases  has  never  been  written  off. 


DEPRECIATION  157 

Inadequacy  or  Supersession.  Depreciation  for  inadequacy  may 
be  descril)e(;l  as  that  lessening  in  value  which  takes  place;  hy  reason 
of  the  growth  of  business,  rendering  apparatus  inadequate  for  its 
purpose,  and  compelling  the  installation  of  machinery  capable  of 
greater  output  or  capacity.  Or  supersession  may  be  described  as 
a  change  of  plant  due  to  excessive  demands  upon  it,  before  it  is 
worn  out.  For  increase  in  business  or  growth  may  render  any 
piece  of  apparatus  or  property  inadequate  for  the  purpose  for 
which  it  was  originally  planned.  This  applies  especially  to  public 
service  properties,  such  as  street  railways,  telephones,  electric 
lighting,  etc. ;  cars  become  too  small  for  their  original  purpose 
and  too  small  for  the  riding  public,  and  when  new  and  larger  cars 
are  substituted  for  the  old,  additional  power  supply  becomes 
necessary,  and  so  on  down  the  line  the  plant  must  be  increased. 

Sometimes  replacement  of  public  utilities  property  is  forced  by 
city  ordinances  long  before  materials  are  worn  out,  in  which  case 
a  large  charge  for  new  plant  has  to  be  made. 

This  has  been  the  case  with  electric  light  companies  to  some 
extent,  but  more  especially  so  with  electric  street  railways,  which 
in  many  cases  have  been  forced  to  invest  in  new  cars  and  to  replace 
old  tracks  with  new,  long  before  the  life  of  the  rails  was  reached. 
Sometimes  the  council  has  been  obsessed  with  the  idea  that  the  rail- 
way must  use  the  grooved-girder  rail  in  place  of  a  T  rail  that  may 
have  been  installed  originally ;  in  other  cases  the  city  may  have 
done  a  large  amount  of  paving  and  have  required  the  railway 
company  to  replace  its  tracks  with  new  construction  all  through. 

In  one  large  city  with  which  the  writer  is  acquainted,  in  order 
to  got  a  guarantee  of  a  low  fare  the  city  not  only  assumed  all 
repairs  to  paving,  but  contracted  to  do  the  excavating  and  plac- 
ing of  the  concrete  base  for  the  track.  This  was  carried  out  to  a 
limited  extent,  then  the  railway  company  was  compelled  to  l)uild 
the  remainder  and  go  through  a  long  and  tedious  lawsuit  to  collect 
for  the  construction  ;  and  in  the  ensuing  years  repairs  to  pavements 
have  been  neglected  to  such  an  extent  that  the  company,  in  many 
cases  of  very  bad  track,  has  been  compelled  to  go  to  the  expense 
of  repairing  the  paving  at  the  same  time  as  the  track  was  repaired 
in  order  to  give  the  latter  proper  support.  In  fact,  the  whole 
field  of  inadequacy  is  well  covered  by  a  paper  by  Mr.  Henry  E. 
Riggs  ])efore  the  American  Society  of  Civil  Engineers,  of  which 
I  quote  the  following  fragment  from  page  1517  of  the  November, 
1910,  Proceedings : 


158  EXGIXEERIXG  VALUATION 

"The  rapid  development  of  large  cities  has  compelled  electric  lines  to 
extend  largelj'.  The  demands  of  the  people  for  more  frequent  and  more 
rapid  ser^^ce,  and  more  modern  and  larger  equipment,  have  greatly 
shortened  the  term  of  life  of  power-plant  equipment  and  cars.  The 
rapid  develoj^ment  in  the  art  of  electricity',  the  congestion  of  traffic  in 
streets  of  cities,  the  enormous  increase  of  train  movements,  and  the  use 
elsewhere  of  newer  tj^pes  of  cars,  have  compelled  the  abandonment  of  mil- 
lions of  dollars'  worth  of  propertj^  and  the  investment  of  other  millions  in 
new  and  improved  facilities  to  provide  for  the  increased  movements  of 
traffic  and  increased  safctj^  to  the  public.  These  changes  are  not  due 
to  the  fact  that  the  original  installation  was  defective,  but  to  the  de- 
mands of  the  public  for  frequent,  safe  and  speedy  ser\ice,  demands 
which  are  perfectly  reasonable.  The  query  is :  should  a  corporation 
which  complies  with  public  demands  be  compelled  to  lose  capital  in- 
vested in  facilities  which  have  not  j'et  paid  for  themselves ;  and  which, 
under  a  contmuance  of  conditions  which  existed  when  they  were 
installed,  or  any  that  might  then  have  been  anticipated,  would  normally 
have  a  useful  life  of  several  more  years,  and  which  were  abandoned,  not 
by  reason  of  being  worn  out  or  unfit  for  service,  but  purelj'  because 
facilities  of  a  more  modern  type  were  called  for?" 

and  again,  Mr.  Riggs  says  on  the  same  page: 

"Every  piece  of  material  and  every  facility  purchased  by  a  company 
is  bought  with  a  definite  expectation  that  it  will  have  a  certain  life, 
that  during  that  term  of  life  it  will  add  sufficiently  to  the  earnings  to 
provide  a  fund  for  its  replacement  and  earn  a  profit.  Xo  matter 
whether  or  not  such  a  reserve  is  created  on  the  books,  this  is  the  theorj', 
and,  under  it,  accident  may  \npe  out  certain  new  property',  other 
property  will  outlive  its  expectation  and  maintain  the  average  life  of 
the  entire  group  of  facilities." 

The  Supreme  Court  of  the  state  of  Oklahoma  in  the  case  of 
State  of  Oklahoma  v.  Pioneer  Telephone  Co.,  said : 

"All  the  evidence  is  to  the  effect  that  there  is  at  all  times  going  on  in 
a  plant  of  this  character  a  depreciation  that  cannot  be  overcome  by 
repair.  It  is  rare  that  any  physical  property  impaired  bj'^  time  and  use 
can  be  so  repaired  as  to  be  the  equivalent  of  the  same  property  new. 
There  comes  a  time  in  the  life  of  physical  units  when  they  cannot  be 
made  usable  by  repair,  and  they  must  be  discarded  and  replaced  by 
new  properties  which  requires  the  ex-penditure  of  capital." 

Wear  and  Tear.  This  is  one  of  the  forms  of  depreciation  or- 
dinaril}^  charged  in  operating  expenses  from  a  bookkeeping  stand- 
point, but  one  that  must  be  considered  when  making  an  appraisal 


DEPRECIATION  159 

as  having  its  influence  on  the  plant  values.  It  consists  of  the 
normal  and  natural  wear  that  takes  place  in  all  ojierating  plants 
whether  manufacturing  plant  or  the  plant  of  a  public  utilities.  It 
is  the  wear  such  as  takes  place  in  the  bearings  of  a  machines  and 
which  is  repaired  by  re-babbitting ;  or  the  wearing  off  of  a  com- 
mutator on  a  dynamo,  which  is  repaired  by  placing  a  new  commu- 
tator ;  or  the  wear  of  the  tires  of  a  wagon  wheel  which  are  repaired 
by  replacing  the  old  tires  with  new.  Accident  repairs  also  come 
under  this  heading,  and,  where  excessive  or  extraordinary,  should 
be  charged  off  gradually,  so  not  to  abnormally  swell  the  current 
operating  expenses. 

Depreciation  due  to  wear  and  teai'  varies  according  to  the  class 
of  apparatus  depreciated ;  in  some  cases  being  rapid  during  early 
use  and  slowing  up  as  life  proceeds,  but  with  other  apparatus  the 
exact  reverse  takes  place  in  that  the  deterioration  during  early 
life  is  very  little,  increasing  at  the  end  very  rapidly.  All  kinds  of 
rates  and  methods  of  calculation  have  been  laid  out  for  figuring  wear 
and  tear,  but  the  rate  of  depreciation  is  more  or  less  an  arbitrary 
assumption  from  whatever  point  it  may  be  viewed,  the  main  thing 
being  that  at  the  expiration  of  some  number  of  years  the  object  is 
worn  out  to  such  an  extent  as  to  be  useless ;  therefore  the  straight- 
line  method  or  depreciation  in  direct  proportion  to  the  assumed 
length  of  life  is  the  one  most  in  use.  When  an  appraisal  is  made 
for  a  forced  sale,  large  rates  of  depreciation  must  be  applied, 
especially  on  machine  tools,  or,  in  fact,  on  any  factory  equipment. 

Valuation  is  an  appraisal  at  some  set  date  and  must  of  course 
take  into  consideration  all  accumulated  renewals  and  all  accu- 
mulated depreciation  of  every  class. 

Again,  when  any  lot  of  apparatus  has  been  through  a  cycle  of 
repairs,  that  is,  each  piece  of  the  whole  lot  has  been  in  the  shop  for 
repairs,  it  can  be  proved  mathematically  that  the  present  or  de- 
preciated value  is  the  original  or  reproduction  cost  of  the  lot,  less 
one  half  the  cost  of  completely  repairing  the  entire  lot,  and  less  any 
natural  or  actual  deterioration  due  to  decrepitude  or  obsolescence. 

For  instance,  take  an  outfit  of  street  car  motors ;  when  all  have 
been  in  the  shop  and  have  undergone  repairs,  and  as  they  go 
through  the  shop  and  start  on  the  second  round,  it  is  obvious  that 
their  value  will  be  the  cost  of  that  part  which  does  not  depreciate, 
plus  one  half  the  cost  of  a  complete  repair. 

Considerable  care  should  be  exercised  in  applying  this  method 
of  calculating  depreciation,  and  it  can  only  be  applied  correctly 


160  ENGINEERING  VALUATION 

to  those  objects  which  are  in  so  common  use  as  to  be  constantly 
going  through  a  cj'cle  of  repairs.  For  instance,  arc  himps,  meters 
and  transformers  could  very  properl}"  ])e  considered  in  this  class. 
The  trouble,  though,  with  this  particular  form  of  apparatus  is, 
that  new  and  improved  types  are  evolved  so  fast  that  the  invest- 
ment can  only  be  considered  safe  or  unimpaired  when  a  very  large 
depreciation  fund  is  provitled  in  order  to  pay  for  the  replacement 
of  these  particular  appliances  in  a  very  short  term  of  life.  This 
depreciation  would  then  be  almost  wholly  covered  by  obsolescence, 
and  it  is  only  safe  to  use  the  cycle  form  of  depreciation  on  a  type 
of  apparatus  which  has  to  be  thrown  away  in  a  few  years. 

It  is  possil^le  to  arrive  at  the  amount  to  be  allowed  for  wear  and 
tear  on  the  basis  of  a  percentage  of  the  original  service  value  of 
each  class  of  construction  never  in  excess  of  50  per  cent,  but  other- 
wise to  be  determined  in  each  case  by  the  ratio  which  the  average 
age  of  the  several  units  comprising  the  class  of  materials  in  ques- 
tion, exclusive  of  replacements,  bears  to  the  estimated  total  life 
of  the  said  class  of  materials  when  subjected  to  wear  and  tear  only, 
always  assuming  the  highest  practicable  maintenance.  It  may  be 
assumed  that  the  life  of  no  class  of  materials  would  exceed  one 
hundred  years.^  Example.  (1)  Street  cars,  if  properly  maintained, 
should  not  reach  the  scrap  heap  for,  say,  40  years.  The  present 
stock  of  cars  in  a  system  may  have  been  purchased  as  follows  :  100 
in  1890  ;  200  in  1896  ;  100  in  1900,  and  50  in  1906  ;  therefore,  the 
average  age  of  all  cars  in  1909  is  11.44  years.  The  ratio  of  this 
average  age  to  the  estimated  life,  40  years,  is  28.6  per  cent;  there- 
fore, on  the  above  assumption,  in  1909,  the  cars  for  the  system 
have  depreciated  28.6  per  cent  of  their  original  service  value. 
(2)  Rails  reach  the  scrap  heap  in,  say,  10  years.  Assume  that 
the  section  of  the  system  which  was  first  built  was  equipped  with 
1000  rails  in  1883,  the  next  section  with  2000  rails  in  1889,  the 
next  section  with  2000  rails  in  1893  ;  hence  the  average  age  of  the 
several  units  in  1909  would  be  19.6  years.  The  ratio  of  this 
average  age  to  the  estimated  life,  10  years,  196  per  cent;  but 
this  indicates  that  all  of  the  original  rails  have  reached  the  scrap 
heap  (gradually)  and  that  those  now  in  place  have  been  provided 
gradually  and  are  in  all  stages  of  wear  from  new  to  scrap  value, 
and  hence  are  subject  to  an  average  depreciation  of  50  per  cent  of 

'  This  rule  is  not  to  bo  applied  to  individual  pieces  of  apparatus,  where  more  than 
one  such  piece  exists  in  the  system  —  svicli  as  to  one  engine  or  one  car,  or  one  rail 
—  but  to  engines  collectively,  or  to  cars  collectively,  or  to  rails  collectively. 


DEPRECIATION  161 

their  original  service  value.  If  the  units  comprising  the  various 
purchases  differ  in  value,  and  hence  these  purchases  are  measured 
in  dollars  instead  of  numbers,  the  average  of  one  dollar's  worth 
should  be  determined  instead  of  the  average  age  of  the  various 
units.  (3)  Engines,  if  properly  maintained  and  subject  only  to 
wear  and  tear,  should  not  reach  the  scrap  heap  for,  say,  90  years. 
Assume  that  one  engine  costing  $100,000,  was  purchased  in  1889 ; 
one  costing  $150,000  was  purchased  in  1893,  one  costing  $200,000 
was  purchased  in  1901.  The  average  age  in  1909  of  one  dollar's 
worth  of  engine  is  therefore  13^  years.  The  ratio  of  this  average 
age  to  the  estimated  hfe,  90  years,  is  14.8  per  cent ;  hence  on  the 
above  assumption  the  engines  of  the  system  in  1909  have  depre- 
ciated 14.8  per  cent  of  their  original  service  value.  Exceptions 
to  this  rule  will  arise  which  will  require  individual  study,  but  in  a 
general  way  the  rule  will  apply  to  the  general  classes  of  street  rail- 
way construction. 

If  betterments  are  being  made  at  the  time  of  renewals,  the  cost 
of  betterments  should  be  charged  to  capital  account. 

Deferred  Maintenance.  This  is  a  class  of  depreciation  that  is 
charged  to  maintenance  account  in  operating  expenses  and  no  at- 
tention is  given  it  as  depreciation  except  at  the  time  of  appraisal, 
when  the  condition  of  repair  of  all  plants  must  be  considered.  No 
appliance  or  apparatus  or  object  is  repaired  or  put  into  complete 
100  per  cent  condition  the  very  moment  the  need  of  such  repairs 
is  manifest ;  a  room  may  need  painting  and  papering,  but  the 
work  may  be  put  off  until  some  more  convenient  time ;  a  street 
car  may  need  painting,  but  the  company  may  be  short  of  funds 
or  may  be  waiting  some  more  propitious  moment ;  a  machine  tool 
may  need  some  repairs,  yet  be  able  to  operate  until  such  time  as 
the  owner  is  ready  to  put  it  in  condition.  All  such  neglected  re- 
pairs are  known  in  an  appraisal  as  deferred  maintenance. 

Deferred  maintenance  may  be  computed  by  estimating  the 
expenditure  necessary  to  put  the  part  into  a  good  serviceable 
condition. 

As  it  is  clearly  impossible  to  keep  every  piece  of  apparatus  up 
to  the  standard  or  at  100  per  cent  of  its  original  value,  when  an 
appraisal  is  attempted  it  must  be  obvious  that  there  will  be  con- 
siderable apparatus  that  is  not  at  the  time  in  perfect  repair  and  an 
estimate  will  have  to  be  made  of  its  exact  condition.  This  is 
ordinarily  done  by  estimating  what  it  will  cost  to  put  it  into  com- 
pletely perfect  repair.     It  is  obvious  that  it  will  be  impossible  to 


162  ENGINEERING  VALUATION 

put  any  piece  of  apparatus  into  condition  as  good  as  new,  although 

it  Avill  doubtless  j)orforni  its  work  (luite  as  well  as  ever,  yet  there  is 
a  deterioration  or  decrease  in  value  that  must  be  given  considera- 
tion. Taking  any  plant  as  it  stands  it  is  probable  that  it  will  be 
impossible  to  put  it  into  a  condition  that  will  exceed  85  per  cent  or 
90  per  cent  of  its  original  value,  and  in  fact  where  it  becomes 
necessary  to  state  a  condition  up  to  which  it  will  be  necessary  to 
maintain  a  plant,  85  per  cent  is  about  as  high  as  it  is  fair  to  ask. 

The  receiver  of  the  Third  Avenue  Raihvay  properties  is  said 
to  have  declined  to  obey  the  order  of  the  Public  Service  Commis- 
sion of  New  York  First  District,  to  provide  a  depreciation  fund, 
on  the  ground  that  he  makes  up  all  depreciation  or  deterioration 
as  it  occurs.  It  has  been  argued  that  when  the  property  is  large 
enough  so  that  any  of  the  ordinary  replacements  do  not  affect 
the  gross  income  to  a  great  extent,  these  charges  simply  become 
wear  and  tear,  and  as  such,  are  legitimately  included  in  the  operat- 
ing expenses.  This  method  is  perhaps  most  commonly  used  in 
manufacturing,  even  more  so  than  w^ith  railway's,  and  with  some 
forms  of  factories  where  there  is  not  danger  that  the  entire  plant, 
or  a  large  part  of  it,  may  be  affected  by  obsolescence,  the  method 
perhaps  may  be  as  good  as  any  other,  but,  generally  speaking,  it 
seems  like  putting  the  charge  on  the  future,  and  with  a  railroad,  in 
particular,  it  is  certainly  taking  an  unwarranted  advantage  and 
dou})tless  paying  dividends  that  will  not  be  earned  in  the  future 
when  the  full  depreciation  comes  into  play. 

In  a  railroad  or  railway  property  the  two  items  affecting  the 
depreciation  account  most  largely  are  track  —  that  is,  rails  and 
ties  —  and  cars.  Rails  are  depreciated  in  two  ways,  first  bj^  wear 
and  next  by  inadequacy,  becoming  too  light  to  hold  up  the  increas- 
ing weight  of  the  rolling  stock;  and  it  is  usually  the  latter  cause 
that  governs  the  life,  so  called,  of  the  rail.  Of  course,  in  the  larger 
cities,  rails  are  ordinarily  left  in  the  roadbed  until  practically 
worn  out,  when  they  are  generally  replaced  bj^  those  of  a  heavier 
section  and  usually  on  a  different  base,  so  that  the  new  construc- 
tion is  apt  to  be  much  more  costly  than  the  old.  Rails  in  such 
cities  ordinarily  last  onlj^  eight  or  ten  years,  and  therefore  form  a 
very  large  item  of  repairs,  and  where  they  usually  have  been  put 
down  all  at  the  same  time  and  the  renewals  start,  say,  ten  years 
after,  and  are  spread  over  a  period  of,  sa}-,  two  or  three  years,  it 
will  be  seen  that  the  charge  for  repairs  is  liable  to  be  excessive 
during  that  time,  much  heavier  than  necessary  if  divided  up  in  a 


DEPRECIATION  1G3 

reserve  fund  for  renewals  —  or  depreciation  —  as  atlvocated 
here. 

Cars,  too,  are  purchased  in  considerable  numbers  at  first  and 
ordinarily  wear  out  at  about  the  same  time,  thus  causing  large 
charges  to  operating  expenses  if  charged  directly  to  that  account. 

It  is  probably  a  fact  that  with  some  of  the  very  large  railroad 
systems  these  two  items  may  become  so  small,  comparatively 
speaking,  as  to  not  affect  the  income  materially. 

In  machine  shops  and  the  like,  where  the  equipment  consists 
of  lathes,  planers,  drills,  and  the  ordinary  tools  making  up  a  shop 
plant,  depreciation  would  be  small  and  not  much  affected  by  ob- 
solescence, and  in  this  case,  replacements  could  be  made  of  one 
machine  at  a  time,  so  as  not  to  bear  too  hard  on  earnings.  In  a 
cotton  mill,  however,  where  radical  improvements  are  often  made 
in  looms,  spinning  frames,  and  other  machines  of  the  kind  and 
obsolescence  takes  place  on  a  whole  section,  the  change  of  all  of  one 
set  of  machinery  is  quite  often  made,  not  because  the  old  is  worn 
out,  but  because  a  new  type  has  been  evolved  that  increases  or 
much  improves  the  production.  In  such  a  case,  a  depreciation 
fund  collected  in  the  past  seems  much  fairer  than  to  make  a 
large  charge  to  operating  expense,  or  to  spread  the  charge  over 
future  years. 

While,  as  a  matter  of  fact,  depreciation  does  not  actually  come 
to  a  head  until  a  plant  or  portion  thereof  is  replaced  or  renewed 
and  settlement  has  to  be  made  for  it;  theoretical  depreciation  is 
such  a  method  of  handling  the  charges  for  such  a  renewal,  that  the 
amount  may  be  spread  more  or  less  uniformly  over  a  period  rep- 
resented by  the  life  —  actual  or  calculated  —  of  the  object  or 
plant  under  consideration.  In  some  forms  of  manufacture  where 
profits  vary  considerably  year  by  year,  being  quite  large  one  year, 
and  small,  or  nothing,  the  next,  it  has  been  customary  to  make 
heavy  charges  to  depreciation  during  the  year  of  heavy  gains  and 
charge  nothing  whatsoever  during  the  loan  j^ears. 

A  most  admirable  statement  of  the  elements  of  depreciation  was 
made  by  Professor  M.  E.  Cooley,  in  the  Milwaukee  Three-cent 
Fare  Case,  as  follows : 

"Depreciation  consisted  of  several  elements  which  should  be  under- 
stood carefully,  Professor  Cooley  stated,  to  avoid  confusion  in  the 
use  of  the  term.     These  elements  were  defined  by  him  as  follows  : 

"1.  Depredation  Due  to  Wear  and  Tear  and  Exposure  to  the  Ele- 
ments.     This  is  continuous.      All  elements  have  a  wearing  life  varying 


164  ENGINEERING  VALUATION 

with  the  element  itself.  No  element  can  be  completelj'  worn  out ;  it 
can  be  worn  only  to  a  point  below  which  it  becomes  unsafe  or  no  longer 
serves  its  original  function.  In  practice  the  average  condition  of  all 
elements  must  be  maintained  at  a  high  percentage  of  the  original  cost 
if  the  property  is  to  serve  its  purjiose  properly.  This  percentage  varies 
from  75  per  cent  to  85  per  cent  of  the  cost  new  of  the  property. 
The  difference  between  this  percentage  of  from  75  to  85  and  the 
original  100  is  a  depreciation  which  is  inherent  in  the  property  and 
cannot  be  dispensed  with.  It  must  be  met  by  a  sinking  fund,  or  its 
equivalent,  otherwise  this  part  of  the  original  investment  becomes  lost. 

"2.  Depreciation  Due  to  Accidents,  a  Sudden  Depreciation.  An 
engine  or  a  boiler  may  be  wTecked  and  -nith  it  other  machinery.  This 
might,  and  probably  would,  involve  a  considerable  expense  for  repairs 
or  replacement,  besides  possibly  crippling  the  plant  in  part.  Cars 
may  collide  or  a  car  may  drop  through  a  bridge.  A  bridge  itself  may 
fall  or  be  carried  away  by  floods.  A  storm,  as  a  cyclone,  may  work 
havoc,  entailing  costs  in  excess  of  those  proper  to  be  charged  to  ordinary 
maintenance  of  property. 

"3.  Depreciation  Due  to  Inadequacy.  Cars  suitable  in  the  past 
had  already  been  superseded  several  times  by  larger  and  better  cars. 
This  has  rendered  the  track,  structure  and  bridges  inadequate,  and  as 
more  power  is  required  to  propel  the  larger  cars,  the  power  plants  have 
become  inadequate.  The  public  demand  is  largely  responsible  for  this 
depreciation  due  to  inadequacy. 

"4.  Depreciation  Due  to  Obsolescence.  This,  while  closely  allied 
to  the  depreciation  due  to  inadequacy,  is  different  in  that  it  embraces 
changes  due  to  advance  in  the  art.  More  efficient  and  effective  ma- 
chinery has  appeared  which  must  be  substituted  for  the  old  to  keep 
abreast  of  the  times.  For  example,  in  steam-engine  practice  the  turbine 
has  come  into  general  use  during  the  past  five  years  and  the  art  of 
steam  turbines  is  at  the  beginning.  Generators  adapted  to  piston- 
engine  practice  are  not  adapted  to  steam-turbine  practice  and  must  also 
be  changed.  Boilers  adapted  to  piston-engine  practice  must  be  re- 
placed to  carry  the  higher  pressures  required.  Condensers  must  also 
be  changed  to  secure  the  better  vacuum  required  to  realize  the  full 
advantage  of  the  steam  turbine.  Owing  to  the  rapid  disappearance  of 
coal  beds,  the  price  of  fuel  must  advance,  and  this  presumably  will 
before  many  j'cars  force  the  adoption  of  the  gas  producer  and  the  pro- 
ducer gas  engine.  Water  powers  are  wisely  being  developed,  but  to 
utilize  them  requires  the  scrapping  of  large  parts  of  the  machinery  in 
use  at  present." 


DEPRECIATION  165 

Rules    for   Depreciating    Railways    and    Lighting    Plants   in    Great 

Britain 

In  1909  the  Board  of  Internal  llevcniue  and  tlu;  Tramway  and 
Light  Railway  Association  took  up  the  question  of  depreciation 
of  tramways  and  lighting  properties  and  promulgated  ti)e  follow- 
ing arbitrary  rules  for  establishing  allowances  which  should  be 
made  in  connection  with  assessing  the  income  taxes. 

Permanent  Way  Life. 

"The  life  of  the  permanent  way  is  to  be  taken  as  12,  14  or  16 
years,  according  to  the  traffic  thereon.  The  classification  is  to  be 
based  on  the  average  car  mileage  per  mile  of  track  per  annum  of 
the  financial  year  preceding  the  year  of  assessment,  viz. : 

(1)  Not  exceeding  50,000  car  miles  per  mile  of  track  —  16  years. 

(2)  Over  50,000  and  not  exceeding  75,000  car  miles  per  mile  of 
track  — -14  years. 

(3)  Over  75,000  and  not  exceeding  125,000  car  miles  per  mile  of 
track  —  12  years. 

(4)  Over  125,000  car  miles  per  mile  of  track  —  special  consideration. 
"  Where  there  are  special  circumstances,  such  as  exceptional  gradients 

and  the  compulsory  use  of  wood  paving,  etc.,  tending  to  show  that 
the  car  mileage  does  not  fairly  represent  the  wear  and  tear  of  the  track, 
each  such  case  is  entitled  to  special  consideration. 

Cost  of  Renewals. 

"  The  cost  of  renewals,  including  setts  or  other  paving,  but  excluding 
concrete  foundations,  should  be  taken  at  £4400  per  mile  of  single 
track  until  the  general  renewal  of  the  track  takes  place. 

Basis  of  Computation  of  Depreciation  Allowance. 

"  No  allowance  should  be  made  in  computing  the  assessable  profits  in 
respect  of  any  expenditure  on  repairs  or  maintenance  of  the  permanent 
way,  but  the  allowance  for  depreciation  should  be  computed  at  such  a 
sum  per  annum  as  will  in  the  aggregate  over  the  determined  life  of 
the  permanent  way  be  equal  to  the  cost  of  renewal  as  above  fixed,  plus 
the  estimated  repairs  for  that  period  : 

Cost  of  renewal  per  mile  as  above £4400 

Add,  for  example : 

Estimated  cost  of  repairs,  at  ClOO  per  mile  per  annum,  for  an 

undertaking  with  a  life  of  16  years 1600 

£6000 

Amount  to  be  allowed  per  annum  in  lieu  of  depreciation,  one 
sixteenth £375 


166  ENGINEERING  VALUATION 

"  The  amount  to  be  added  in  respect  of  ordinary  repairs  should  be 
determined  by  taking  the  actual  average  expenditure  as  shown  in  the 
accounts  of  the  undertaking  for  the  last  three  years,  or  such  period 
less  than  three  j'cars  as  the  undertaking  has  l^een  in  existence. 

"  Repairs  under  this  head  should  be  understood  to  include  renewals 
of  special  track  work  at  junctions  and  crossovers,  which  occur  at  fre- 
quent intervals. 

Periodical  Adjustment. 

"  Inasmuch  as  the  expenditure  on  repairs  is  expected  to  increase  as 
the  track  begins  to  wear,  in  wliich  case  the  figure  to  be  adopted  under 
this  head  wliich  is  to  be  ba.sed  on  past  experience  will  be  unsati.sfac- 
tor}',  the  amount  of  such  estimate  should  come  up  for  revision  at  the 
end  of  every  five  years,  and  an  adjustment  should  be  made  by  increas- 
ing or  diminishing  the  allowance  as  the  circumstances  require,  having 
regard  to  the  basis  of  calculation  outlined  above. 

"A  strict  account  should  be  kept  by  the  corporation  and  the  sur- 
veyor of  the  annual  allowances,  and  of  the  actual  expenditure  on 
repairs  and  renewals  ;  and  at  the  end  of  10  or  15  j'ears  (i.e.  the 
second  or  third  revision),  or  at  such  time  as  the  general  renewal  of 
the  track  shall  have  taken  place,  the  amount  to  be  annuallj'  allowed 
should  be  reconsidered  and  increased  or  diminished  for  succeeding 
years  as  the  ascertained  facts  shall  show  to  be  necessary,  provided 
that  under  no  circumstances  shall  the  allowances  for  previous  j-ears 
be  reopened. 

"  AH  expenditure  on  extensions  and  improvements  should  be  ex- 
cluded from  the  working  expenses  for  income  tax  purposes,  and  the 
necessary  additional  allowance  for  depreciation  on  the  lines  suggested 
above  (i.e.  mileage)  should  at  once  be  allowed  on  such  expenditure, 
and  added  to  the  sum  ahead}'  allowable. 

"  The  allowance  of  £4400  for  renewal  of  permanent  way  mentioned 
above  is  intended  to  apply  to  the  overhead  trolley  system.  Special 
arrangements  should  be  made,  on  the  lines  of  the  foregoing,  in  the 
case  of  the  conduit,  surface  contact,  or  other  system.  The  number 
of  such  cases  is  very  small.  As  the  circumstances  vary  very  con- 
siderably in  each  case,  the  amount  to  be  allowed  for  renewals  should, 
in  the  first  instance,  be  arrived  at  by  arrangement  with  the  chief 
inspector  of  taxes. 

Cables . 

"  In  additi(m  to  repairs,  depreciation  should  be  allowed  at  the  rate 
of  3  per  cent  per  annum  on  the  written-down  value. 


DEPRECIATION  167 

Overhead  Equipment,  i.e.  Trolley  Wires  and  Connections. 

"No  depreciation  should  be  allowed;  all  expenditures  on  main- 
tenance and  renewals  should  be  charged  as  working  expenses,  as  and 
when  incurred. 

Cars  and  Other  Rolling  Stock. 

"  Subject  to  the  ensuing  clause,  expenditure  on  maintenance  and 
renewals  should  be  treated  as  working  expenses,  and  allowed  in  lieu 
of  depreciation. 

"  Depreciation,  however,  should  be  allowed  in  lieu  of  renewals  where 
the  circumstances  justif^y  such  an  allowance,  pro\-ided  that  a  strict 
account  is  kept  of  all  renewals,  and  that  if  such  renewals  are  charged 
to  revenue  account  they  shall  be  shown  separately  in  such  account 
and  added  back  in  computing  the  assessable  profits. 

"  The  allowance  in  such  case  should  be  7  per  cent  per  annum  on 
the  written-down  value. 

"  In  any  case  the  annual  expenditure  on  repairs  is  to  be  allowed  as 
a  deduction  in  computing  the  assessable  profits. 

General  Plant  and  Machinery. 

"  All  other  plant  and  macliinery,  including  standards,  brackets  and 
workshop  tools,  but  excluding  loose  implements,  office  furniture  and 
small  articles  which  require  frequent  renewals,  should  be  bulked 
together  and  depreciation  allowed  thereon  at  the  rate  of  5  per  cent 
per  annum  on  the  written-down  value,  in  addition  to  the  cost  of 
repairs. 

General. 

"  In  all  cases  where  depreciation  allowances  are  granted  a  strict 
account  should  be  kept  of  the  annual  expenditure  on  renewals  (and 
repairs  in  the  case  of  tramway  tracks),  including  replacements  due 
to  obsolescence,  and  of  the  amounts  allowed  for  depreciation  and 
obsolescence,  whether  under  this  arrangement  or  under  any  arrange- 
ment made  prior  hereto,  and  a  readjustment  should  be  made  for  the 
future,  if  necessary,  at  the  end  of  every  five  j'^ears,  as  detailed  under 
tramways  (permanent  way),  subject,  however,  to  the  special  pro- 
visions applicable  to  tramways  (permanent  way) . 

"  Where  depreciation  allowances  other  than  those  for  the  permanent 
way  of  tramway's  are  granted,  renewals  should  be  carefullj'  dis- 
tinguished, and,  if  charged  against  revenue,  they  should  be  notified 
to  the  surveyor,  in  order  that  they  may  be  added  back  in  arriving  at 
the  income  tax  liability. 

"  '  Written-down  value '  means  original  prime  cost,  i:)lus  subsequent 
additions,  less  all  allowances  actually  granted  by  the  revenue  in  respect 
of  wear  and  tear. 


1G8  ENGINEERING  VALUATION 

"  These  proposals  are  to  take  effect  for  the  year  1908-1909,  and  for 
years  preceding  in  cases  where  claims  of  depreciation  are  at  the 
present  time  awaiting  settlement. 

"  The  computations  necessary  for  any  future  adjustment  should  be 
dul}^  made,  agreed  and  recorded  each  year,  whether  the  accounts  for 
the  particular  year  under  review  show  any  assessable  income  tax 
liable  or  not. 

"  Where,  in  any  cases,  allowances  for  depreciation  have  been  made 
which  are  now  to  be  discontinued,  and  they  have  not  been  exhausted 
by  renewals  already  effected,  the  amount  of  such  unexhausted  allow- 
ances should  be  determined  by  agreement  between  the  surveyor  and 
the  corporation,  and  deducted  from  the  expenditure  on  future  re- 
newals as  and  when  they  are  effected. 

"  All  cases  of  dispute  should  be  referred  to  the  board  tlirough  the 
chief  inspector  of  taxes." 

A  well-conceived  classification  of  depreciation  is  that  made  by 
Leonard  Metcalf,  Civil  Engineer,  in  a  paper  on  "  Waterworks  Valu- 
ation and  Fair  Rates,"  etc.,  read  before  the  American  Society  of 
Civil  Engineers  (see  Vol.  LXIV,  1909,  page  16),  from  wiiich  the 
following  extract  is  made: 

"Broadly  speaking,  this  depreciation  may  be  classified  under  phj-sical 
and  functional  depreciation,  and,  in  certain  cases,  perhaps,  under  a  third 
class  growing  out  of  expediency  or  extraordinary  external  requirements. 
By  physical  depreciation  is  meant  the  actual  wear  and  tear  of  operation 
upon  the  structure ;  by  functional  depreciation,  the  obsolescence  of  the 
structure  or  its  inability,  for  one  reason  or  another,  effectively  to  meet 
throughout  its  life  the  full  requirements  of  the  service.  Thus  the 
structure  may  suffer  total  depreciation  and  be  thrown  out  of  service, 
not  only  because  through  wear  and  tear  it  has  reached  a  condition  where 
further  expenditures  for  repairs  or  attempts  to  make  it  suitable  for  the 
required  service  would  not  be  economical  or  expedient,  but  also  because 
recent  improvements,  or  new  inventions,  new  developments  and  radical 
changes  in  service,  or  the  demands  of  one  kind  or  another  involving 
sweeping  changes  in  the  existing  plant,  make  abandonment  necessary." 

Methods  of  Calculating  Depreciation.  —  At  best,  no  proper 
estimate  of  depreciation  can  be  made  without  personal  inspection 
and  visual  examination;  even  then  the  result  is  but  an  experienced 
guess  backed  by  broad  experience  and  cultivated  judgment.  For 
this  reason  even  experts  diflfer  very  widely  in  their  estimates  unless 
they  can  be  induced  to  Avork  together  and  form  their  judgments 
from  the  same  examination  and  data. 


DEPRECIATION  ICO 

When  a  factory  or  plant  is  shut  dowai  and  no  longer  working, 
apparatus  may  fairly  be  depreciat(!d  as  low  as  its  scrap  value 
for  appliances  that  have  passed  their  usefulness;  but  when 
machinery  is  of  modern  make  and  still  in  good  condition,  a  fle- 
preciation  to  a  value  of  t\venty  or  twenty-five  per  cent  is  about 
as  low  as  it  is  fair  to  go. 

New  machinery  that  has  to  be  valued  for  a  forced  sale  has 
often  been  appraised  at  one  half  its  cost  new. 

When  a  plant  is  still  in  operation,  a  "going  concern,"  and  has 
been  in  working  order  for  a  series  of  j^ears  such  as  would  be  longer 
than  the  estimated  length  of  life  of  the  apparatus  or  machinery  in 
use,  it  would  not  be  fair  to  depreciate  the  values  to  scrap  just 
because  the  estimated  life  had  been  exceeded.  But  where  such 
appliances  and  machinery  or  other  objects  have  been  in  daily  use, 
a  salvage  value  of  twenty  or  twenty-five  per  cent  would  be  much 
more  fair  as  the  lowest  price  at  which  such  a  machine  should  be 
appraised. 

One  of  the  most  completely  worked  out  schemes  for  the  sal- 
vage or  minimum  service  value  of  structures  and  equipment  is 
that  contained  in  a  Memorandum  Regarding  Values  used  for  Lives 
of  Structures  and  Equipment  gotten  out  by  the  Joint  Engineering 
Department  of  the  Wisconsin  Commissions :  following  is  an  ab- 
stract from  the  memorandum : 


Minimum  Service  Value, 

__  PER  Cent  of  Repro- 

rOWER    rLANT  DUCTioN  Cost 

Steam  plant  of  all  kinds,  shafting  and  pipe  coverinj;  25  per  cent 
Electric  generators,  motors  and  f  Modern  type  .     .  20  per  cent 
rotaries                                      1  Obsolete  type .     .  15  per  cent 
Static  transformers  (including  regulators  and  com- 
pensators), station  type 40  per  cent 

o    -4.  uu      J      J     •  •               14-1  Modern  type     .  45  per  cent 

Switchboard  and  wirmg  complete  i  ^,      ,  „^ 

I  Obsolete  type    .  35  per  cent 

o    .,  I  u       1  •     i           i       1           f  Modern  type     .  80  per  cent 

Switchboard  instruments,  alone    i  ^,     ,  ^„ 

I  Obsolete  type   .  60  per  cent 

Storage  batteries 35  per  cent 

Lighting  arresters,  station  type 50  per  cent 

Electric  Light  and  Railway 

Copper  wire,  weatherproof \  ^^^-^^^  ^j  ^^pp^^. 

Lead-covered  cable,  underground  and  overhead  J 


170  EXGIXEERIXG  VALUATION 

/->         •  1  Minimum  Service  Value, 

Electric  Light  and  Railway  —  Continued  per  cent  of  repro- 

duction Co8T 

Poles  both  wood  and  iron,  anchors  and  guys  ...  20  per  cent 

Service  transformers 25  per  cent 

Arc  lamps  and  span  equipment 20  per  cent 

Service  and  watt  meters 80  per  cent 

Telephone  Equipment 

Power  plant  and  wire 25  per  cent 

Poles 20  to  40  per  cent 

Iron  wire 10  per  cent 

Copper 25  per  cent 

Lead-covered  cable,  both  overhead  and  underground  25  per  cent 

Subscribers'  sets 30  per  cent 

Gas  Plant 

Purifiers,  old  type,  according  to  stj'le  and  condition  25  per  cent 

Consumers'  meters 70  per  cent 

It  may  be  assumed  that  no  class  of  apparatus  will  last  more 
than  one  hundred  years ;  that  nothing  must  be  depreciated  to  a 
price  lower  than  its  scrap  or  salvage  value,  and  that  no  plant 
or  class  of  appliances  can  be  maintained  at  100  per  cent  of  its  full 
value  new. 

Straight  Line  Method.  By  far  the  most  commonly  used  method 
of  depreciating  machinery  and  plant  is  that  known  as  the  straight 
line.  By  this  method  a  length  of  life  of  the  particular  apparatus 
under  consideration  is  estimated  and  determined  by  the  best 
experience  and  good  judgment  available,  then  this  length  of  life 
divided  into  100  will  give  the  rate  at  which  the  depreciation  is  to 
be  figured;  that  is,  the  rate  per  cent  per  annum,  or  the  annual 
rate  at  which  the  depreciation  is  to  be  computed.  If  the  life  of 
an  engine  is  assumed  to  be  twenty  years,  then  its  cost  new  will 
be  depreciated  one  twentieth  of  such  cost  each  year,  or  at  the  rate 
of  five  per  cent  per  annum  on  the  original  cost  new. 

While  this  method  is  in  itself  an  assumption,  yet  it  does  away 
with  all  side  assumptions  or  guesses  as  to  how  much  the  machine 
is  depreciating  each  individual  year.  It  is  the  method  used  by 
many  of  the  public  utility  commissions,  by  the  court.s,  most 
generally  by  public  accountants,  and  by  far  the  greater  majority 
of  engineers. 

The  Method  of  Diminishing  Values.  This  plan  is  the  same  as 
the  straight  line  method,  except  that  the  depreciation  is  not  cal- 


DEPRECIATION  171 

culated  in  proportion  to  the  length  of  lifo,  but  at  a  rate  por  coiit 
assumed  as  correct  for  the  particular  object  or  machine,  computed 
on  th(>  diminishin,a;  value  of  the  apparatus.  That  is,  for  example, 
if  a  machine  cost  originally  $1000  and  the  rate  of  depreciation  is 
assumed  as  10  per  cent,  then  at  the  (>nd  of  the  first  year  the  orig- 
inal cost  will  be  reduced  10  per  cent,  or  to  SOOO  ;  the  next  year  10 
per  cent  will  be  deducted  from  the  value  at  the  end  of  the  pre- 
vious year  and  the  new  value  becomes  $810,  and  so  on  throughout 
its  life.  It  will  be  seen  that  this  depreciation  gradually  diminishes, 
and  there  will  never  be  a  time  when  the  value  reaches  zero.  The 
table  following  on  pages  172  to  175  shows  the  rate  of  decrease,  or 
rate  at  any  year  at  various  percentages. 

Sinking  Fund  Method.  This  plan  is  based  upon  the  assumption 
that  a  fund  is  to  be  laid  aside  annually  to  cover  the  depreciation. 
At  the  end  of  the  year  a  certain  amount  of  money,  as  determined 
from  sinking  fund  tables,  is  deposited  at  interest,  this  interest  is 
annually  compounded  and  the  regular  contribution  is  added  to  it, 
the  whole  sum  drawing  interest  at  the  regular  rate  for  the  ensuing 
year  when,  the  interest  for  the  year  just  passed  having  been  added, 
the  regular  contribution  is  again  made ;  and  so  it  continues  until 
the  assumed  period  of  life  of  the  object  or  apparatus  has  come  to 
an  end,  when  there  should  be  on  deposit  a  sum  equal  to  the  first 
cost  of  the  apparatus  less  the  scrap  or  salvage  value. 

Two  factors  have  to  be  predetermined  in  this  case,  first  the 
length  of  life  it  is  presumed  that  the  object  to  be  depreciated  will 
last  in  good  serviceable  condition  or  until  its  usefulness  has  dis- 
appeared ;  second,  the  rate  of  interest  that  can  be  secured  for  the 
deposits,  the  interest  to  be  compounded  each  year  at  the  time 
the  annual  contribution  is  made. 


172 


EXGIXEERIXG  VALUATION 


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DEP111<:C1ATI0X 


173 


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174 


ENGINEERIXG  VALUATION 


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.— 1 

I— 1 

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DKPRIX'IATION 


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176  ENGINEERING  VALUATION 

The  compound  interest  tables  shown  on  pages  177  to  184,  as 
Table  I,  will  supply  the  only  figures  that  are  tedious  to  compute, 
and  from  the  figures  shown  in  this  table,  all  sinking  fund  and 
PRESENT  WORTHS  cau  be  calculated  by  the  following  formulas  : 

Let  r  —  rate  of  interest  expressed  decimally,  as,  .03, 

/  =  life  in  years, 

n  =  number  of  years  or  term,  or  age, 
(1  -\-rY  =  compound  interest, 
then 

To  find  the  present  worth  P  of  $1.00  at  compound  interest  for  a 
term  of  years  : 

1 


P  = 


(1  +  ry 


To  find  the  present  worth  Pi  of  an  annual  investment  of  $1.00 
for  a  term  of  years  : 

1 L_ 

(1  +  rr 

^'-  r 

To  find  the  investment  per  annum  at  compound  interest  S  that 
will   produce  $1.00   in  any  term  of  years,   commonly  called   a 

SINKING  FUND : 

r 


s  = 


(1  +  '')"- 1 


To  find  the  amount  that  an  annual  investment  F  of  $1.00  at 
compound  interest  will  produce  in  a  term  of  years: 

^_(l  +  r)"-l 

r 

Given  the  life  in  years  that  an  object  is  expected  to  last  ;  the  age 
in  years  of  the  object  at  the  time  it  is  desired  to  determine  its 
condition  per  cent,  and  the  percentage  which  the  sinking  fund  is 
drawing,  then 

(1  +ry-il 


condition  per  cent  =100 


(i  +  '-y-ij 


Tables  follow  on  pages  185  to  189  which  show  the  condition  per 
cent  at  2,  22,  3,  3|,  4  per  cent  interest  on  the  sinking  fund. 


DEPRECIATION 


17 


+ 
3 


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pq     3 


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3 
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1  "  CO  1  -  -H  -H  ^  CO 

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CO  <N  I*  -T'O  —  0> 

f^  (X)  ■*  O)  CO  O  CO  to  TO  w  CO  ~  t-  -JD  t  -  CO 

-O  i-H  -f  CO  CO  -T  I- 

(M  O  t-  lO  I- 1^  t-~  iH  CO  c:  cj  X'  «3  o  -r  :? 

O)  1-1  CJ  CO  X  O.  t-          1 

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lOiH  01  '-^  lOI-t- 

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co  to  o  CO  CO  0 1  eo 

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1 0  O  CO  --  1  ^  CO  Oi 

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1--  00  X  p  p  c  q 

r-H  T-i  r-i  I-i  .-i  C^i  (N 

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--  •*  X  -r  CO  cc  1-1 

lO  O  01  00  CO  lO  01  01  ■>#  CO  X  --H  CO  CO  lO  X  X 

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•<*  X  e  1  X  •>*  — •  X  I-  --T  CO  t-  ~.  e  1  -^  th  1  - 1  e  re  re  ■<#  t^  r-  r^  •>*  CO 

T-H  ei  -^  i.e  t^  q  q  oi  Tf  CD  X  q  re  lo  00  q  ce  q  q  <N  lo  q  05  o  o 

cococococ<5co-^Tj5Tji^TjHoiOLr:»bddddt-^r>^t^o6o6o» 

oox(Mio»H-HLOO'*e>uooLOCveo>-ei'-it^xoo— iCO'^t^iO 

t^  le  CO  Tf  lo  ^  1^  — ^  CO  o»  o  X  -r  o  CO  ^  c;  ei  o  CD  1^  --C  ei  CO  eo 

o  X  CO  '-<  t-  re  X  -H  vr  00  ei  ~.  rT  1  e  o  —  re  1  e  1  e  lo  e  1 1  e  X  ~.  CO 

o  -^  c  le  o5  re  'e  X  —  00  re  X  —  ■-;:  cNi  -jr  X  ~.  —  t-  e  1  —  ei  -r  00 

5~- 

•^rei^  —  CO— 'Crereo~.  oxreoci-  —  ie»-ixxiereco 

^ 

<M  re  X  X  CO  re  X  X  -f  CO  re  X  X  -r  »H  re  ei  ::  -r  iH  -r  I-  c:  re  CO 

t-'Xcn'-i"<j<i^O':f<C5'5}<o-.rre  —  oc;r:c:~'^i^  —  t^coo 

r>;  X  q  -H  N  CO  o  CO  t^  o>  ^  iM  -t' -o  00  c-  —;  '^r  q  00  3  CO  L.e  x_  i-j 

C^'c^WCOCOCOCOCOCOeOrjirPTjiTj^-^jiTj^OLeiOuidcoddb^ 

cowtoxoxr:ieceto>-'ceei— iN^s^oioioo-^xoco 

o  ^  c;  c:  t — ^  1  e  re  re  -^  — '  -*'  re  1  ~  t-  X  ~  c:  -^  lo  —  o  c:  >e  00 

cjOi — ^i-co— 't-eico-C'e  —  —  CT>rei-ei<— 00  —  -rx-rco 

^-S 

>o  w  1  >■  1  ^  05  re  c  -*  ",:;  cji  "^  e  1  — '  1  ^  lo  :e  1  e  c;  -T  lo  -f  X  X  -^  cj 

o^ 

C5  'e  —  X  t-  o  1-  c;  X  lo  e  1  o  c;  re  (N  X  ei  1-  re  CO  —  ei  le  o  OS 

HN 

lo  T—  o  T-'  CO  i.e  o  >-  c;  CO  o  —  c^  1  e  OS  1  ^ cr.  :e  «n  -^  i  ~  ce  -o  •^ 

CO 

•^  CO  01  -H  o  o  o  ^H  ei  CO  le  1^  c:  ei  lo  c.  -t  X  -t  o  '^  ce  -H  ^  00 

Tf  iq  q  1--  00  q  q  -^  oi  co  '^  i.e  q  x  os  q  oi  ce  'O  t-  x  q  e)  co  "o 

C^C^C^C<ic4c^CCCOCOeocOCO^^COeOT^TJ^Tt^r}^■«J^TJ^lO'-'OlO^O 

COt^X050-H'MCO-t<>OOt^XC50'^01CO'^«OOt^XO>0 

wojoiojeococococoeococococo^"'*"'^'*'*^'^-*'^'^'© 

DEPREC'IATIOX 


183 


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o  lo  lo  lo  «o  lo  lO  o  lo  <o  :c  o  w  o  «o  o  o  o  o  t- 1^  i^  i^  r^  t- 

<N  i.'t  C^i  >C  O  1^  o  O  -^  eo  X  O  '~  irt  «D  -.r  O  O  -t*  o>  \r:  -a-^-^G^ 
c  CO  —<  —1  o  C'.":  o  "^  •^  o  X  X  c:  00  — .  rt  1-  — '  CO  -^  -r  Oi  X'  o 
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T-i  fM  X  -^  th  o  c:  —  o  T}<  o  -r  X  '-:  c~  -^  —  -  re  00  •-  c  T  —  t- 
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cocococo"«i'-*-*i--:ioio:ocoi:^t>.oox~-~.  C'Hc^icoco-fio 

000(MNrt<OCOOO>iOI>r^Ot-t>-05t^^eOO<NGOO« 
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ir;  cc  X  ic  o  cr.  i-  x  c  t-  o  -t  X  o  ■*  co  ^  t^  c^iio  o  t^  o  oi  «o 
(M  c;  CO 't  lo  Oi  c:  o  O)  00  :c  -~  X  '-t<  Tji  C2  O  t^  CO  t-  Oi  i^  -^  X  lo 

»0  O  O  OI  O  '-H  -^  CO^H  05  C;  3  iM  w  tH  f~.  O  lO  l"~;  O  C;  CO  CO  i.O  O 

d  d  -<  CO  ■*  -o  t-^  ci  ^  N  Ti^  ^-l  d  ^  Ti4  o  C3  oi  L-o  oi  oi  -,D  d  Tt*  a> 

'-H(M(M(M(NO-)(MCSICOCOCOCOCO-*'*-*'>*iOLO«OCOOt^t^t- 

t^  t^  r^  -t  ?o  X  o  'O  ^  t-  cc  C2  C5  c^i  <3>  -+'  o  -.c  CO  <N  --c  —  vr  CO  o 

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t^i— luOOW—nXr^OOiOOClt^OOCiOi-OeoiOrOOl^^O* 

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O  Ol  "+  X  lO  t^  lO  O)  CI  OS  CO  CO  CO  'l^  <35  T-<  CO  t^  t-  O  t^  lO  Ol  CO  <N 

-*  -ft  t--  CO  eo  cc!  CO  ^  X  c- '-'  o;  oi  o  CO  CO  X  c;  t-^  <N  -r  "^^  oi  X  CO 

O  CO  OJ  C2  «D  CO  ^  C5 1^  eo  O  LO  O  t-  00  C  0|  LO  C:  ■^  Ci  1-0  01  C:  00 

c^oicoco^Ldddi^oodd^oieoiddt^ood^Hcoi.ddoo 

r-lT-(,-ii-iT-l-H.-i^,-(TH.-H(MiM(MC<ICq(M(NiM«C0C0C0C0eO 

o  CO  Tt<  o  ^  —  t-  01  to  th  -*  X  c  -)■  o  :o  --T  C-.  •-:;  ■*  oi  oi  oi  r.  o 
1-1  X  t^  lO  CO  X  —  CO  CO  -rt*  -c  0 1  ■_:  ~  t-  :o  r?  re  —  ^  —  x  ro  ~  o 
oco  t^  — CD  01  01 10  CO  c~  y:  z  1-  i-o  t-  ~  X  ■-:  ■*  -r  X  ~.  1- 1- 
co:cc;t^»o-^r:-roi(Nio-^c;oioo.r7:—  —  oo-^X'or-Ti< 
Tt  X  CO  t--  o«  i^  orx  ^  o  CO  CO  c;  t--;  'i;  oj  o  c:  X  i>  1-;  I-  r.  r:  th 
ddddTH'-^oi(N'co'^-^i.dddt-^xdddTHoico--iot-^ 

,— l,-^T^.-Hl— ii— ii— (i-li— i^Hi— 1>— itH^^^h-hO1C«O)0J0)0ICN 

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OTLOOXeooiC:  C^OCD'l^O'-H'rt-cO^Xl^eDTfOJCiLOCfl 
O  O  Tf  CO  CD  OI  ^  lO  LO  0»  O  X  CO  --O  00  O  CO  ;0  O)  tH  ^  OI  LO  :c  "3 

OXC2  —  -"atOLOOi^^HTft^ceoo. — r~i-t-r;'t  —  —  •* 

COOC5CO«DC2COt^'-H'OOCOXCOt-COXCt~iO  —  XiOOlOS 

t>^  i>  i>  00  00  CO  d  d  d  d  d  --H  ^'  oi  <N  ct  CO  -r  -r  lo  d  d  t-^  X  00 

CO 

0^»-HCO^OOOOXO>(M^XC5005C>0'*COeOI^Tt<OC^)«0 
^  t^  _,  CO  ^  jv^  ,->  rvj  -^  O  X  OI  lO  OI  t-  -H  -H  C5  O  00  t^  CO  C5  OI  «0 

coioixeoioio-r  —  ooco^-fOcD-^cocoi^N  —  -fooioo 
X  X  C".  —  CO  -jr  c  1 0  —  t-  1 0  CO  CO  -r  »o  X  01  r^  ce  th  ~  —  OI  LO  o 
t^  ~  ^  -r  CD  X  —  c?  v::  00  — '  -r  I ~  —  CO  -^  c:  CO  i^  ■•-•  LO  ~  CO  I- '-' 

lO  LO  O  O  CO  -O  l^  1--  t^  C-  X  X  X  C5  0>  C5  O  O  O  •rH  — 1  —1  OI  01  « 

»-H(NfOTf<lOvOt^XCiO— <(MC0Tt<»OOt^XC5O'HiMr0"<t»O 
iOiOiOiO>0»OiOiOLOCOOOCOOCOOOOOC-t>t--t>-t^t- 

184 


EXGIXEERIXG   VALUATION 


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ot^oooiO'-KMcoTfioot^oooo— icjro-^io-ot^xc^o 

2  3 

t^ot^t^ooxXGOooooooooooxosoocjC;  OJC5Cic:cr.o 

iH 

■^lOOLCOscii.tt^Tt^ecLfrcrcxoooO'MrciorcorfTteo 

cc  c;  ~  Z  eo  1^  c:  i^  >C  eo  re  -r  -r  t^  OS  — 1  y;  — '  c;  t-  --C  c:  c  X  eo 

r^  c^i  1-  -r  ■>#  c  '.-  --r  1-  o  1-  —  --c  L-::  (N  o  X  o  -.r  OS  -c:  T  t-  — .  «j 

■^^ 

cct  '-~  —  CO  T't  :^)  r;  •M  o  —  1-  (^ TT  o  X  —  1^  ~  to  t- ^  ~.  ^ T-i 

t>. 

c  w  X  '•t  (N  r:  I-  —  ~.  lo  ''  c:  r j  c^i  1-)  r:  c  re  —  o  r:  ?t  X  r;  t- 

-^  re  i.t'  C5  Tji  ~  :::■  ~  re  ■>#  —  c:  •"  ^i  f*  ^'  i":  ~  x  o6  — '  x  t^  c  t-^ . 

t^XCiO<N^?i-l^C2iH^ecCXr-i-<itt^C:Trl^'HC:o<.e^«0 

• 

—  T-H— HCNNOlC^fNtNeorCCOCO-^^-^LOi-OOtOOt^l^COOO 

■*  o  —  ^  OS  o  X  n  o  o  -f-^  ^  o  '-I  X  "M  CO  X  lO  re  t^  le  ^  00 

ro  re  ~  '-e  OS  i^  :~  1  -  c  C3  -c  o  (^  —  lo  re  re  e  1 1  e  c<i  c  1  e  ".r  re  o 

o  X  X  t-  lo  re  ei  —  le  00  re  X  ei  c:  •*  ei  ei  le  -t  «D  r:  —  i~  vr  (N 

o^ 

oc-i  Le  oos  '^  1-  c;  •-::  t-  i~t-  ei  -r  CD  :^  X  'e  ~.  -^  'e  y.  t-  —  o 

o 

CO  X  -^  X  i>  ^  X  c  i-e  lo  c  q  q  i-  ■*  x  x  -c  —  lo  i  -  z  r.  q  « 

re  30  -*  ci  «o  c^i  X  c;  re  »-i  o  c:  X  X  OS  d  ei  'e  r:  eo  x  — '  —  ~'  OS 

X  X  C5  Ci  o  -^  -^  M  re  Tj)  i-e  ir:  -sS  t^  00  c;  —  e  1  re  lo  v2  y:  c  e  i  « 

th  ^  rt  ^  ^  th  ^  rt  —1  ^  T-i  ei  ei  ei  ej  <N  ei  ei  re  re  eo 

00  --1  <M  CO  «  C«5  t^  (N  X  OS  O  1.';  Si  (^  iH  'M  Cl  •M  1-0  «  !M  X  ^  C  ■* 

^©oO'S'wOX'Ot-  —  c;o-^cieit^rot^osoLei-e(M«o 

^^ 

Tt<T-iox«oc^iX'+iL'eeorec;x:ooc:;c^i— i:cH^c:Trrt<oo 

C5 

0!M— HC;t-c;c^c;XNreM'M'^oc:c:t^oooxc;'^«o 

«1N 

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X  r-^  LO  X  «  -c  d  >  e  ci  ■«*<  rr!  1  r::  •-<  t^  eo  o  t^  Lr:  re  1-i  C  O  c:  O  T-i 

lo  o  o  o  t- 1^  X  X  X  OS  ci  o  --H  rH  01  r>e  ro  "*  ic  «D  t--  X  X  o  th 

-H^H.— H-Hl-Hl— I.-H.— (tHi— (r-Hl— (OlOJ 

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coooreTjii.e  —  'ee)w~~y:c:M7:ei-reio  —  t^ieeiiN 

Tt<  re  re '-  ■^  ~  —  re  ei  ■*  1  - 1  -  -^  --T  o  -.r  '  e  '  e  X  -^  -^  '  e  1  e  ~  th 

>5 

t^  -^  'e  o  «o  re  T  I-  ^  US  —  re  ei  X  c<5  -^  3  '"  ei  CO  v:  r;  1  ~  re  o 

LO 

I--.  X  q  ei  »o  q  q  re  c^j  (N  'T  i-;  ei  x  t- 1--  q  -r  —  o  ^  >-  ei  ei  lo 

c  oi  ■*  t^  OS  c^i  Tj^  t>;  d  pi  d  ci  ro  d  o  'i<  ci  re  X  CO  X  re  cr;  L-e  i-i 

TjiTj^^Tf^L-eOL-iOO-^Ot^t^ooXXOCiOC:'-^  —  Oieo 

^orcioOLO-HOM«oc;oo-*i-ixreoxosxTt<iOTj<cj 

0(Ne4re'H-rrot^C!"<i"-eoxt^'-i(MXLert<t-c5i^C'^«o 

"^ 

X  o  c;  re  o  ei  re  le  re  00  le  X  c:  "^  t-  -H  — 1  re  —  o  o  o  re  le  00 

o  •<*  t^  t^  eo  i.e  -f  c  —  lo  le  re  c;  i^  «  o  t^  le  'e  t ^  c;  --^  t^  oo 

■* 

CO  q  q  re  00  re  q  q  re  'H  q  ~  — ;  ei  »o  q  re  q  q  -^  't  -f  t^  q  «o 

X  d  d  c^  pi  >e  d  X  d  c^  -T  d  X  d  oi  -^  i^  d  c^i  »o  X  -^  't  X  th 

(N(Ncocoeocoroco-<*'*TtH-*Tt<io«oioi-':)»-'eo«Dot>-t^t^oo 

oc;roN-oc50C500ioo-<*ioeoT-(t^-HS5crs-<*iMcOLOio 

o  -H  X  c^i  00 1^  vr  X  o  «D  re  ~  ei  o  eo  ^  -t<  -,c  i^  «  X  r^  "^  '^f  OS 

Q 

fe^oreos-Hci^'eeoie-^iet-oj':rre~TT-i-HX-rei'^ 

5^ 

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■* 

t^  Tf^  CO  -H  o  c;  ~  ~.  c  o  —  re  '  e  X  'H  T  ~  re  q  lo  T-<  x  -^  Le  lo 

ci  d  ^  c^  e<i  re  -t  lO  d  00  d  d  --^  c^i  Tji  lo  d  X  d  ■!-)  re  '^  d  x  o 

'-|(^^(^^(^^o^<^^(^^<^^(^^e^(Nce)rocoeoool^5cocox*•'*'■*•<t"*>o 

c  eu^  Tf  Tji  c:  -f  i^  t^  to  X  ei  "e  ei  00  w  e-1  '-0  re  eo  —  w  -H  ^e  iH 

le  '^  -t  -^  t-  re  ei  r".  ei  00  -f  r:  ~.  -t-  T-i  —  — 1  rt  ei  eo  le  x  '~  '^  -^ 

--5 

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o^ 

'w  re  re  "^  t-  ?  1  —  1  -  X  'H  -,--*•  —  -c  'H  X  X  —  1  ~  o  X  re  —  re  OS 

CO 

o  -M  -^  — <  to  ei  1  ~  re  ~  «o  ei  q  q  re  i-j  x  q  'e  re  <n  —  —  -^  -^ »-; 

CO  -i"  -1"  >.e  w  d  d  1-^  i-^  00  d  d  d  —  (n  ei  re  -r  '.e  «d  t^  x  d  d  ^h 

^_^^THrtrtrtr-i-Hrt  —  eiejc^eic^iNc^cfloic^i'Mreeo 

Ot^XOiO-^01CO'*»OOh»XC50-^(MCO'^iO-Ot^XC50 

H  W 

t^t^t^t^OOXXXXOOXXXXO>0505C3©OSOCiC500 

DEPRECIATION 


185 


TABLE   II.     CONDITION   PER   CENT 
Depreciation  Calculated  on  a  Sinking  Fund  Basis  at  2% 


Formula  :   condition  per  cent  =  100 


(1  +  r)"  -  1 
L(H-r)'-lJ 


Years  Life 

a 
o 

2 

3 

4 

5 

6 

8 

10 

12 

14 

15 

16 

17 

18 

20 

25 

80 

88 

40 

45 

60 

< 

51 

67 

76 

81 

84 

88 

92 

93 

94 

94 

95 

95 

95 

96 

97 

98 

98 

98 

99 

99 

'  1 

— 

44 

51 

61 

68 

76 

82 

85 

87 

88 

89 

90 

91 

92 

94 

95 

96 

97 

97 

9S 

•) 

— 

26 

41 

51 

65 

72 

77 

81 

82 

84 

85 

86 

88 

91 

92 

93 

95 

<»(! 

'.Mi 

:; 

— 

21 

35 

52 

62  (59 

74 

76 

78 

79 

81 

83 

87 

90 

91 

93 

:94 

95 

4 

— 

17 

40 

52  61 

67 

70 

72 

74 

76 

79 

84 

87 

89 

91 

93 

94 

5 

— 

26 

42  53 

60 

63 

66 

68 

71 

74 

80 

84 

86 

90 

91 

93 

6 

14 

32  45 

53 

57 

60 

63 

65 

69 

77 

82 

84 

88 

90 

91 

7 

— 

22 !  36 

46 

50 

54 

57 

60 

65 

73 

79 

81 

86 

88 

90 

8 

11127 

39 

43 

48 

51 

54 

00 

69 

76 

79 

84 

86 

88 

9 

— 

18 

31 

32 

41 

45 

49 

56 

66 

73 

76 

82 

86 

87 

10 

9 

24 

30 

35 

39 

43 

50 

62 

70 

73 

80 

83 

86 

11 

— 

16 

22 

28 

33 

37 

45 

58 

67 

70 

78 

81 

84 

12 

8 

15 

21 

27 

32 

39 

54 

64 

68 

76 

80 

83 

13 

— 

8 

14 

20 

25 

34 

50 

61 

65 

74 

78 

81 

14 

— 

7 

13 

19 

29 

46 

57 

63 

71 

76 

80 

16 

7 

13 

7 

23 

17 

12 

6 

42 
37 
33 
29 
20 
15 
10 
5 

54 
50 
47 
44 
40 
36 
33 
29 
25 
21 
17 
12 
9 
5 

60 
57 
54 
50 
47 
44 
40 
37 
34 
30 
27 
23 
20 
16 

69 
67 
65 
62 
60 
57 
55 
52 
50 
47 
44 
42 

;>'.  1 

36 

74 
72 
70 
68 
66 
64 
62 
60 
5S 
56 
53 

:.i 
1'.) 

4(3 

78 
76 
75 
73 
71 
70 
68 
0(5 
64 
62 
(50 
.">S 
5(5 
54 

16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
2(5 
27 
28 
29 

65 

60 

65 

70 

75 

80 

85 

90 

95 

100 

— 

12 

33 

44 

52 

30 

99 

99 

99  99 

99 '99 

99  99 

99 

99 

1 

8 

30 

41 

50 

31 

98 

98 

OS  •'.}'.) 

99  99 

99  i»9 

99 

99 

2 

4 

27 

38 

48 

32 

97 

97 

98  98 

98  98 

99  99 

99 

99 

3 

— 

23 

36 

46 

33 

96 

96 

97 

97 

98 

98 

98 

98 

99 

99 

4 

20 

33 

43 

34 

95 

95 

96 

97 

97 

97 

98 

98 

98 

98 

5 

17 

30 

41 

35 

94 

94 

95 

96 

96 

97 

97 

97 

98 

98 

6 

15 

27 

39 

36 

93 

93 

94 

95 

95 

96 

97 

97 

97 

98 

7 

10 

25 

36 

37 

92  92 

93 

94 

95 

96 

96  97 

97 

97 

8 

7 

22 

33 

38 

91191 

93 

93 

94 

95 

96  1 96 

96 

97 

9 

4 

19 

31 

39 

90  90 

92 

93 

94 

94 

95  96 

96 

97 

10 

— 

17 

29 

40 

13  i 

26 

41 

10 

24 

42 

7 

21,43 

3 

is! 

44 

16 

12 

9 

6 

3 

46 
46 
47 
48 
49 
60 

180 


EXGIXEERIXG  VALUATION 


TABLE   in.     CONDITION  PER   CENT 
Depreciation  Calculated  on  a  Sinking  Fund  Basis  at  2|% 

"(1  +  rY  -  1 


Formula  :   condition  per  cent  =  100  — 


L(l  +  r)'-lJ 


Years  Life 

2 

3 

4 

6 

6 

8 

10 

12 

14 

15 

16 

17 

18 

20 

25 

30 

33 

40 

45 

60 

< 

51 

68 

76 

81 

85 

88 

91 

93 

94 

95 

95 

95 

96 

96 

97 

98 

98 

99 

99 

99 

1 

— 

34 

52 

61 

69 

77 

82 

86 

88 

89 

90 

90 

91 

92 

94 

95 

96 

97 

98 

98 

2 

— 

26 

42 

54 

65 

73 

78 

82 

83 

85 

85 

86 

88 

91 

93 

94 

95 

96 

97 

3 

— 

21 

38 

52 

03 

70 

75 

78 

80 

80 

82 

84 

88 

91 

92 

94 

95 

96 

4 

— 

21 

40 

53 

62 

68 

71 

73 

75 

77 

79 

85 

88 

90 

92 

94 

95 

6 

— 

27 

43 

53 

61 

64 

67 

69 

71 

75 

81 

86 

87 

90 

92 

94 

6 

14 

33 

45 

54 

58 

61 

64 

66 

70 

78 

83 

85 

89 

91 

92 

7 

— 

22 

37 

47 

52 

55 

58 

61 

66 

75 

80 

83 

87 

89 

91 

8 

11 

28 

40 

45 

49 

52 

55 

61 

71 

77 

80 

85 

88 

90 

9 

— 

19 

32 

38 

43 

46 

50 

56 

67 

75 

78 

83 

86 

88 

10 

10 

25 

30 

35 

40 

44 

51 

64 

72 

75 

81 

85 

87 

11 

— 

17 

23 

29 

34 

38 

44 

60 

69 

73 

80 

83 

86 

12 

8 

16 

22 

27 

33 

49 

56 

66 

70 

78 

81 

85 

13 

— 

8 

15 

21 

26 

35 

52 

62 

67 

76 

SO 

83 

14 

— 

8 

14 

20 

30 

49 

59 

65 

73 

78 

82 

15 

8 

13 

7 

24 
19 
14 

7 

43 
39 
35 
30 
25 
20 
15 
11 
6 

56 
53 
50 
46 
42 
38 
34 
31 
26 
23 
18 
14 
9 
5 

62 
59 
56 
52 
49 
46 
43 
40 
36 
32 
29 
25 
21 
17 

71 
69 
67 
65 
62 
60 
57 
55 
52 
50 
47 
44 
41 
38 

76 
75 
73 
71 
69 
67 
65 
63 
60 
68 
56 
53 
51 
49 

80 
79 

?I 

74 
72 
71 
69 
67 
65 
63 
62 
59 
57 

16 
17 
18 
10 
20 
21 
22 
23 
24 
26 
26 
27 
28 
29 

66 

60 

65 

70 

75 

80 

85 

90 

95 

100 

— 

13 

35 

46 

65 

30 

99 

99 

99 

99 

99 

99 

99 

99 

99 

99 

1 

9 

32 

44 

53 

31 

98 

98 

99 

99 

99 

99 

99 

99 

99 

99 

2 

7 

28 

41 

51 

32 

97 

98 

*)S 

<)S 

99 

99 

99 

99 

99 

99 

3 

— 

25 

38 

49 

33 

96 

97 

97 

9<S 

9.S 

9N 

99 

99 

99 

99 

4 

23 

36 

46 

34 

96 

96 

97 

97 

98 

98 

98 

98 

99 

99 

6 

19 

33 

44 

35 

94 

95 

90 

97 

97 

97 

98 

98 

98 

99 

6 

15 

30 

42 

36 

93 

94 

9.") 

90 

90 

97 

97 

98 

98 

98 

7 

11 

27 

39 

37 

92 

94 

\)\ 

9.') 

9(i 

96 

97 

97 

98 

98 

8 

8 

24 

36 

38 

91 

93 

94 

9o 

95 

90 

97 

97 

97 

98 

9 

4 

21 

34 

39 

91 

92 

93 

94 

95 

96 

96 

97 

97 

97 

10 

17 
14 
11 

7 
4 

31 

28 

25 

23 

'20 

16 

13 

10 

7 

4 

40 

41 
42 
43 
44 
45 
46 
47 
48 
49 
60 

DEPRECIATION 


187 


TABLE   IV.     CONDITION   PER   CENT 
Depreciation  Calculated  on  a  Sinking  Fund  Basis  at  3% 

Formula  :  condition  per  cent  =  100 


'(l  +  r)»-l"| 
_(1  +  ry  -  ij 


Years  Life 

a 

2 

3 

4 

5 

6 

S 

10 

12 

14 

15 

16 

17 

18 

20 

25 

•M 

:!:: 

10 

1.-. 

.'lO 

51 

68 

76 

81 

85 

89 

91 

93 

94 

95 

95 

95 

06 

06 

97 

OS 

Os 

00 

00 

00 

1 

— 

34 

51 

62 

69 

77 

83 

86 

88 

89 

90 

91 

'.)] 

\>- 

0  1 

06 

06 

07 

98 

98 

2 

— 

36 

42 

52 

65 

72 

78 

82 

84 

85 

86 

S7 

S\) 

01' 

0  1 

0  1 

06 

97 

97 

3 

— 

21 

35 

54 

64 

70 

76 

77 

79 

81 

82 

M 

SO 

01 

02 

01 

06 

06 

4 

— 

18 

40 

64 

62 

69 

71 

74 

76 

77 

80 

86 

89 

90 

93 

94 

96 

6 

— 

27 

43 

55 

62 

65 

68 

70 

72 

76 

82 

87 

88 

91 

93 

94 

6 

14 

32 

46 

55 

59 

62 

65 

67 

71 

79 

84 

86 

90 

92 

93 

7 

— 

22 

37 

48 

52 

56 

59 

62 

67 

76 

81 

84 

88 

91 

92 

8 

12 

29 

41 

46 

50 

53 

57 

62 

72 

79 

82 

87 

89 

91 

9 

— 

19 

33 

38 

43 

47 

51 

57 

69 

76 

79 

86 

88 

90 

10 

10 

25 

31 

37 

41 

1.-. 

",•) 

65 

73 

77 

83 

86 

89 

11 

— 

17 

23 

30 

35 

■10 

17 

61 

70 

74 

81 

85 

87 

12 

9 

16 

23 

28 

33 

42 

58 

67 

72 

79 

83 

86 

13 

— 

8 

15 

21 

27 

36 

53 

64 

69 

77 

82 

85 

14 

— 

8 

14 

21 

30 

49 

61 

66 

75 

80 

84 

15 

7 

14 

8 

25 
19 
13 

7 

45 
41 
36 
31 
26 
21 
16 
11 
6 

57 
54 
51 
47 
43 
40 
36 
32 
28 
24 
10 
11 
10 
5 

64 
61 
57 
54 
61 
48 
45 
41 
37 
34 

:;() 
■ji  i 

Is 

73 
71 
69 
67 
64 
62 
60 
57 
54 
52 
10 
ir, 
11 
40 

78 
76 
75 
73 
71 
69 
67 
65 
()3 
61 

r>'.) 

51 
51 

82 
81 
79 
78 
77 
75 
73 
71 
70 
68 
()6 
64 
(il 
()0 

16 
17 
18 
19 
20 
21 
22 
23 
24 
26 
26 
27 
28 
29 

55 

60 

65 

70 

75 

80 

S5 

90 

96 

100 

— 

14 

37 

49 

58 

30 

99 

99 

99 

99 

99 

99 

99 

99 

99 

99 

1 

9 

34 

46 

55 

31 

99 

99 

99 

99 

99 

99 

99 

99 

99 

99 

2 

5 

30 

44 

54 

32 

98 

98 

98 

99 

99 

99 

99 

99 

99 

99 

3 

— 

27 

41 

51 

33 

97 

97 

98 

98 

98 

99 

99 

99 

99 

99 

4 

24 

38 

49 

34 

96 

97 

97 

98 

98 

98 

99 

99 

99 

99 

6 

20 

36 

46 

36 

95 

96 

97 

97 

98 

98 

98 

99 

99 

99 

6 

17 

32 

44 

36 

94 

95 

96 

97 

97 

98 

98 

98 

99 

99 

7 

12 

28 

41 

37 

93 

95 

95 

96 

97 

97 

98 

98 

98 

99 

8 

8 

25 

39 

38 

93 

94 

95 

96 

96 

97 

97 

98 

98 

98 

9 

4 

22 

36 

39 

92 

93 

94 

96 

96 

96 

97 

97 

98 

98 

10 

19 

1() 
11 

8 
4 

33 

30 
27 
24 
21 
18 
14 
11 
7 
4 

40 
41 
42 
43 
44 
46 
46 
47 
48 
49 
60 

188 


ENGINEERING  VALUATION 


TABLE   V.     CONDITION   PER   CENT 

Depreciation  Calculated  on  a  Sinking  Fund  Basis  at  3|% 

"(1  +  r)»  -  l" 


Formula  :   condition  per  cent  =  100  — 


(1  +  rY  -  1. 


Years  Life 

2 

8 

4 

6 

6 

8 

10 

12 

14 

15 

16 

17  18 

20 

25 

30 

33 

40 

45 

60 

< 

51 

68 

76 

81 

85 

89 

91 

97 

94 

95 

95 

96  96 

97 

97 

98 

98 

98 

99 

99 

1 

35 

52 

62 

69 

78 

83 

86 

89 

90 

91 

91  92 

93 

95 

96 

97 

98 

98 

98 

2 

26 

42 

53 

67 

74 

79 

82 

84 

85 

87  87 

89 

92 

94 

95 

96 

97 

98 

3 

21 

37 

53 

64 

71 

76 

78 

80 

81  i  83 

85 

89 

92 

93 

95 

96 

97 

4 

19 

41 

55 

63 

70 

72 

75 

77  78 

81  86  1 

90 

91 

94  95 

96 

5 



28 

44 

55 

63 

06 

09 

71 

73 

77 

83 

87 

89 

92  94 

95 

6 

14 

33 

47 

56 

60 

03 

66 

68 

72 

80 

85 

87 

91  93 

94 

7 

— 

23 

38 

49 

53 

57 

60 

63 

68 

77 

82 

85 

89191 

93 

8 

12 

29 

41 

46 

51 

55  58  1 

64 

74 

80 

83 

88  90 

92 

9 

— 

20 

33 

39 

44 

48 

52 

59 

70 

77 

81 

86  89 

91 

10 

11 

31 

32 

37 

43 

47 

54  66  i 

75 

78 

84 

88 

90 

11 

— 

17 

24 

30 

35 

40 

48 

62 

72 

76 

83 

86 

89 

12 

8 

16 

23 

29 

34 

43 

59 

69 

73 

81 

85 

88 

13 



8 

15 

22 

28 

38 

55 

66 

71 

79 

83 

87 

14 



8 

15 

22 

32 

51 

63 

68 

77 

82 

85 

15 

8 

15 

7 

26 

20 

13 

6 

46 
42 
37 
32 
27 
22 
18 
12 
6 

60 
56 
53 
49 
45 
41 
37 
33 
29 
25 
20 
15 
10 
5 

65 
62 
59 
56 
53 
50 
46 
43 
39 
36 
32 
26 
23 
19 

75 
73 
71 
69 
67 
64 
62 
59 
57 
54 
51 
48 
45 
42 

80 
79 
77 
75 
73 
72 
70 
68 
65 
63 
61 
59 
56 
54 

84 
83 
81 
80 
78 
77 
75 
74 
72 
70 
68 
67 
65 
63 

16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 

65 

60 

65 

70 

75 

80 

85 

90 

<.I5 

100 

— 

14 

40 

51 

61 

30 

99 

99 

99 

99 

99 

99 

99 

99 

99 

;n; 

1 

10 

36 

49 

59 

31 

99 

9!t  !>9  99  '.19  '.•!»  '99 

99 

99 

99 

o 

5 

33 

46 

56 

32 

98 

9.S  99  99  '.(9  99  1)9 

99 

99 

99 

3 

— 

29 

43 

54 

33 

98 

98  1  98 

99 1 99  99 

99 

99 

99 

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4 

25 

40 

52 

34 

97 

97 

98 

98 

98|99 

99 

99 

99 

99 

5 

21 

37 

49 

35 

90 

97 

97 

98 

98 

98 

99 

99 

99 

9'.) 

0 

17 

34 

46 

30 

95 

9() 

97 

97 

98 

98 

98 

99 

99 

99 

7 

13 

30 

44 

37 

95 

95  1 90 

97 

97 

98 

98 

98 

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99 

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9 

27 

41 

3.^ 

94 

95  9(i 

90 ! 97 ' 98 

98 

98 

99 

99 

9 

4 

24 

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3a 

93 

94  95 

96  97 

97 

98 

98 

98 

99 

10 

— 

20 

35 

4C 

17 

32 

41 

13 

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5 

23 

4- 

19 
15 

8 
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4 

4£ 
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47 
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6( 

DEPRECIATION 


189 


TABLE   VI.     CONDITION   PER   CENT 
Depreciation  Calculated  on  a  Sinking  Fund  Basis  at  4% 

'd  +  r)"  -  l" 


Formula  :   condition  per  cent  -=  100  - 


_(1  +  r)'  -  1. 


Years  Lipb 

a 

2 

3 

4 

5 

6 

8 

10 

12 

14 

15 

16 

17 

18 

20 

25 

30 

33 

40 

46 

60 

^ 

51 

68 

76 

82 

85 

89 

92 

93 

95 

95 

95 

96 

96 

97 

98 

98 

99 

99 

99 

99 

1 

■ — 

35 

52 

62 

69 

78 

83 

86 

89 

90 

91 

91 

92 

93 

95 

96 

97 

98 

98 

99 

2 

— • 

26 

42 

53 

66 

74 

79 

S3 

84 

86 

87 

88 

90 

93 

94 

95 

97 

97 

98 

3 

— 

22 

36 

54 

65 

72 

77 

79 

81 

82 

83 

86 

90 

92 

94 

96 

97 

97 

4 

— 

18 

41 

55 

64 

70 

73 

75 

77 

79 

82 

87 

90 

92 

94 

96 

96 

5 

— 

28 

45 

56 

64 

67 

70 

72 

74 

78 

84 

88 

90 

93 

95 

96 

6 

14 

34 

47 

57 

61 

64 

()7 

69 

73 

81 

86 

88 

92 

94 

95 

7 

— 

23 

39 

50 

54 

58 

61 

64 

69 

78 

84 

86 

90 

92 

94 

8 

12 

30 

42 

47 

52 

55 

59 

()4 

75 

81 

84 

89 

92 

93 

9 

— 

20 

34 

40 

45 

50 

53 

60 

71 

79 

82 

87 

90 

92 

10 

10 

26 

33 

38 

43 

47 

55 

68 

76 

79 

SC 

S9 

91 

11 

— 

18 

25 

31 

37 

41 

50 

64 

73 

77 

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ss 

90 

12 

9 

17 

24 

30 

35 

44 

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70 

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13 

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16 

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29 

39 

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67 

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14 

— 

8 

16 

22 

33 

52 

64 

70 

79 

84 

87 

15 

8 

15 

8 

27 
20 
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7 

48 
43 
38 
34 
28 
23 
18 
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61 
58 
54 
51 
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43 
39 
35 
30 
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67 
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71 
69 
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79 
77 
75 
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70 
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80 
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74 
73 
71 
69 
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19 
20 
21 
22 
23 
24 
25 
26 
27 
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55 

60 

65 

70 

75 

80 

85 

90 

05 

100 

— 

15 

41 

54 

63 

30 

99 

99 

99 

99 

99 

99 

99 

99 

99 

99 

1 

11 

38 

51 

61 

31 

99 

99 

99 

99 

99 

99 

99 

99 

99 

99 

2 

5 

34 

48 

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32 

98 

99 

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99 

99 

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97 

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97 

98 

98 

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6 

18 

36 

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97 

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7 

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95 

96 

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97 

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98 

99 

99 

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8 

10 

29 

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98 

98 

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94 

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14 

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38 
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28 
24 
21 
17 
13 
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4 

40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 

190  EXGIXEERIXG  VALUATION 

The  sinking  fund  method  is  coming  more  into  use  all  the  time  in 
connection  with  pubhc  utiHty  properties,  as  a  deposit  of  actual 
funds  that  can  be  called  upon  at  any  time  to  cover  the  cost  of 
renewal  inspires  confidence  in  the  public  mind  that  the  property 
will  b}'  kept  up  to  the  standard. 

One  argument  against  depositing  this  fund  outside  the  company's 
business  is,  that  in  case  the  company  wishes  to  borrow  money  it 
is  a  legitimate  query  as  to  why  it  does  not  make  use  of  the  fund 
alread}'  on  deposit. 

Another  argument  against  depositing  funds  outside  is  that  or- 
dinarily more  money  can  be  made  by  keeping  the  money  in  use 
than  in  depositing  it  in  a  fund  even  at  compound  interest.  Again, 
in  case  a  property  is  being  appraised  for  establishment  of  rates, 
the  value  of  funds  deposited  for  renewals  should  not  be  included, 
as  these  funds  have  already  been  earned  from  the  public,  and 
including  them  in  a  valuation  would  be  requiring  the  public  to 
pay  dividends  on  money  already  paid  in  by  it. 

In  case  no  fund  is  deposited  but  the  money  is  kept  in  the  busi- 
ness as  an  accumulating  surplus  against  which  depreciation  or  re- 
newals can  be  charged,  it  is  policy  to  divide  the  surplus  account 
into  renewal  fund  surplus  and  general  surplus.  In  large  corpo- 
rations doing  a  great  amount  of  business  and  with  many  plants 
in  widespread  localities  it  is  not  customary  to  establish  funds 
for  depreciation  to  which  regular  deposits  shall  be  made,  but  to 
appropriate  certain  amounts  each  year  to  pay  for  renewals  and 
replacements,  and  the  amount  so  appropriated  will  depend  upon 
the  earnings  of  the  past  period  and  upon  the  amount  of  property 
necessary  to  be  replaced,  or  renewed. 

Rates  of  Depreciation.  —  The  rates  of  depreciation  depend  upon 
so  many  factors  that  the}^  have  to  be  set  arliitrarily.  The  fact 
is  that  the  actual  life  of  all  apparatus,  buildings,  etc.,  depends 
so  much  on  the  location,  the  original  quality,  the  kind  of  usage  to 
which  they  are  put,  the  amount  of  money  expended  for  repairs  and 
the  promptness  with  which  repairs  are  made,  that  the  use  of  any 
one  rate  becomes  out  of  the  question,  so  that  rates  must  be  made 
taking  into  consideration  all  these  factors,  and  even  then  of  neces- 
sity they  must  be  of  an  arbitrary  nature. 

The  rates  most  often  used  are  5  and  10  per  cent,  or  a  life  of 
20  and  10  years,  })iit  these  rates  are  ordinarily  applied  to  full 
plants   and   only   currently   to   specific   objects.      Take,    for  ex- 


DEPRECIATION  191 

ample,  a  Babcock  and  Wilcox  boilor.  This  boiler  can  never  be 
wholly  depreciated,  for  it  is  repairable  or  renewable  in  all  its  parts 
each  in  its  own  good  time,  while  with  a  horizontal  return  tubular 
boiler,  when  the  shell  is  gone  the  whole  boiler  has  to  be  abandoned. 
And  3^et  Ave  ordinarily  depreciate  either  boiler  at  the  rate  of  5 
to  10  per  cent  per  annum  on  the  original  cost. 

It  is  doubtful  if  any  one  in  business  at  present  has  ever  seen  a 
worn-out  Corliss  engine,  and  yet  it  is  common  to  depreciate  any 
of  them  at  the  rate  of  5  per  cent  on  the  original  cost.  The  writer 
has  always  held  that  when  there  is  little  chance  for  obsolescence 
or  supersession  a  Corliss  engine  could  be  depreciated  equitably 
at  a  very  low  rate,  for  the  reason  that  by  boring  out  the  cylinder 
or  even  replacing  it  entire,  adding  new  valve  mechanism,  babbitt- 
ing the  bearings  and  cross-head,  it  could  be  made  for  all  practical 
working  purposes  as  good  as  new,  and  all  at  a  very  limited  cost, 
and  then  only  at  very  long  intervals. 

Machine  tools  depreciate  very  slowly  with  ordinary  use,  and  yet 
in  large  factories  might  have  to  be  superseded  due  to  obsolescence 
much  oftener  than  for  decrepitude.  So  rates  must  be  set  by  judg- 
ment alone.  On  a  railroad  there  is  so  much  that  appreciates  that 
it  often  becomes  doubtful  if  the  appreciation  does  not  in  a  great 
measure  balance  the  depreciation.  The  right  of  way  and  other 
real  estate  is  bound  to  rise  in  value,  the  solidification  of  the  road- 
bed certainly  does  not  depreciate  it,  and  the  advance  in  value  of 
terminals  is  apt  to  be  constant  and  in  many  places  of  a  consider- 
able amount.  The  depreciation  of  rails,  ties  and  special  work  is, 
however,  so  great  that  some  fund  should  be  provided  for  renewing 
them  as  they  wear  out.  This  wearing  out  is  not  true  depreciation, 
but  is  wear  and  tear,  and  as  such  should  be  chargeable  in  operat- 
ing expense  or  a  special  fund,  and  in  the  case  of  special  work  which 
wears  out  quickly  and  irregularly,  so  that  only  comparatively 
small  amounts  come  due  at  any  set  time  this  can  be  done  without 
calling  too  heavily  on  the  finances.  It  is  quite  feasible  to  value 
special  work  for  an  appraisal  on  the  50  per  cent  or  cycle  basis; 
that  is,  deducting  the  scrap  value,  the  true  value  of  all  the  special 
work  would  be  one  half  the  remaining  value.  But  in  the  case  of 
rails,  unless  in  a  very  large  system,  the  annual  renewals  of  rails 
and  ties  will  call  rather  heavily  on  capital,  until  such  time  as  the 
yearly  average  renewals  are  of  substantially  the  same  amount, 
when  the  charge  can  be  made  direct  to  operating  expense  for  wear 
and  tear,  instead  of  to  a  renewal  fund.     The  rates  of  depreciation 


192  EXGIXEERIXG  VALUATION 

therefore  cannot  be  equitably  adjusted  until  such  time  as  the 
average  wear  can  be  calculated  for  the  whole  railroad.  Rails  and 
ties  in  the  much  traveled  portions  of  cities  seldom  last  for  a 
greater  period  than  ten  years,  while  in  the  suburbs  twenty  or 
thirty  years'  life  vaoy  be  expected.  One  method  of  computing 
the  life  of  a  rail  is  to  base  the  wear  and  life  on  the  fact  that 
11,000,000  to  13,000,000  wheel  movements  over  a  rail  will  wear 
it  down  one  quarter  of  an  inch.  This  rate  of  wear  has  been  sub- 
stantiated by  tests  in  several  large  cities. 

In  Massachusetts,  the  Gas  and  Electric  Light  Commission  has 
established  a  rate  for  application  to  the  property  owned  by  Mu- 
nicipal Electric  Light  plants  in  order  that  a  uniform  charge  may 
be  used.  This  rate  is  specified  as  3  per  cent  depreciation  on  the 
cost  of  all  plant,  exclusive  of  land  and  water  power  appurtenant 
thereto. 

The  Wisconsin  Commissions  use  a  method  for  determining  the 
"condition  per  cent"  that  gives  results  based  upon  the  sinking 
fund  method  of  depreciation.  The  Joint  Engineers  Department 
has  worked  out  a  series  of  curves  and  tables  for  lengths  of  life 
as  high  as  one  hundred  years. 

By  this  method  it  is  assumed  that  during  the  early  life  of  the 
object  depreciated  the  decrease  in  value  will  be  at  a  rate  some- 
what slower  than  in  the  later  period,  or,  that  the  depreciation  will 
increase  in  amount  at  an  ever  increasing  rate,  becoming  very  con- 
siderable during  the  last  part  of  the  existence  of  the  object. 

The  tables  on  pages  185  to  189  give  the  condition  per  cent  for 
any  elapsed  period  for  any  length  of  life  up  to  50  years,  and  the 
percentages  are  still  further  controlled  by  a  statement  of  the  actual 
physical  condition  as  learned  from  a  visual  examination  by  the  in- 
spector who  checks  the  list  in  the  field.  This  physical  condition  is 
shown  in  the  field  notes  as  "G,"  good;  "F,"  fair;  "P, "  poor; 
and  the  "condition  per  cent"  is  taken  from  the  table  direct  for 
"G"  ;  10  per  cent  is  deducted  from  the  amount  shown  in  the  table 
for  "F";  and  20  per  cent  is  deducted  for  "P." 

The  "condition  per  cent"  thus  found  is  used  to  state  the 
depreciated  condition  of  property  in  place  of  the  direct  age  of 
the  object,  as  by  the  straight  line  method  which  is  calculated 
in  direct  proportion  to  the  total  length  of  life  accorded  the 
object. 

For  example,  an  engine  being  accorded  a  life  of  thirty  years,  of 
which  fifteen  years  had  elapsed,  would  l)e  given  a  value  due  to 


DEPRECIATIOxN  193 

50  per  cent  of  its  total  life  by  the  straight  line  method,  whereas 
if  the  "condition  per  cent"  were  applied,  a  considerably  greater 
value  would  be  given  for  the  remaining  life  of  the  engine  if,  on 
visual  examination,  it  was  found  to  be  in  "good"  condition. 

The  Wisconsin  Railroad  Commission  has  covered  the  regular 
plants  by  giving  as  the  average  life  of  electric  railways  18.02  years, 
electric  light  plants  17.46  years,  telephone  plants  11.24  years. 

In  a  paper  read  at  the  Convention  of  the  American  Institute 
of  Electrical  Engineers  in  Chicago,  June,  1911,  Henry  Floy 
gave  the  following  compilation  of  rates  which  have  the  added 
value  that  they  have  been  accepted  by  some  body  in  authority. 
They  do  not  include  maintenance,  but  cover  theoretical  deprecia- 
tion. The  list  applies  especially  to  electric  railways,  but  many 
items  would  also  be  found  in  other  industries. 

Rates  of  depreciation  charged  for  factories  are  so  dependable 
upon  use,  location,  rate  of  profit  for  the  year  and  other  factors 
that  it  is  useless  to  state  any  that  will  apply  to  all  or  any  factory 
or  contents.  In  many  industries  the  rate  of  depreciation  that  is 
drawn  off  depends  on  the  profits  made  during  the  year,  large 
amounts  being  written  off  for  years  of  heavy  net  earnings  and 
little  or  nothing  being  charged  during  years  of  light  profit.  In 
fact,  it  may  be  said  that  depreciation  in  many  factories  is  not  cal- 
culated by  regular  rates,  but  is  written  off  in  the  shape  of  a  lump 
sum,  of  any  amount  such  as  may  be  warranted  by  the  year's  profits. 

In  a  lease  of  the  North  and  West  Chicago  Street  Railroad 
Companies  to  the  Chicago  Union  Traction  Company,  it  was  pro- 
vided, among  other  things,  that  there  should  be  deducted  from  the 
gross  income  "a  reasonable  charge  for  depreciation  of  the  plant 
and  equipment"  and,  exception  having  been  taken  by  the  lessor 
companies  to  the  deduction  made  by  the  lessee  company  under 
this  head,  and  the  lessee  company  being  at  the  time  in  the 
hands  of  a  receiver,  Messrs.  Stone  and  Webster  of  Boston  were 
retained  by  the  court  to  report  what  would  be  a  reasonable 
deduction  for  depreciation. 

The  provision  for  depreciation  recommended  by  the  engineers 
was  equivalent  to  5.59  per  cent  of  the  original  cost  in  the  case  of 
the  North  Chicago  lines  and  5.68  per  cent  of  the  original  cost  in 
the  case  of  the  West  Chicago  lines.  The  total  charge  in  respect  of 
maintenance  and  depreciation  recommended  l)y  them  was  equiva- 
lent to  21.77  per  cent  and  23.70  per  cent  of  the  gross  earnings  of 
the  North  and  West  Side  lines  respectively. 


194 


ENGINEERING  VALUATIOT^ 


APPROVED   RATES   USED   IN   ESTIMATING  THEORETICAL  DEPRECIATION 

By  Henry  P'loy,  Trans.  Am.   Inst.   E.  E.,  June,   1911 

(Maintenance  not  included) 


Deprecl^tion 

PER  Cent  per 

Property 

Year 

Authority 

Remarks 

Straight  Line 

Aerial  Lines       .... 

5 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Air  Brakes 

5 

Wisconsin  R.  R.  C. 

Air  Compressors     .     .     . 

4-5 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

Arc  Lamps 

6i 

Wisconsin  R.  R.  C. 

15 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

8 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Belting 

5 

Wisconsin  R.  R.  C. 

Boilers 

3M 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

10 

B.  J.  Arnold 

Coney  Island  &  Brooklyn 
adopted  byP.S.C.N.Y. 

(Water  tube)      .     .     . 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C.  N.Y. 

(Fire  tube)     .... 

3§-6| 

Wisconsin  R.  R.  C.» 

(Water  tube)       .     .     . 

5 

Wisconsin  R.  R.  C 

(Fire  tube)     .... 

10 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

6| 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Bonds       

5 

50% 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

wearing  value 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

5 

Wisconsin  R.  R.  C. 

Breeching  and  Connections 

3|-10 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

Buildings  (Brick)  .      .     . 

U 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

2 

E.  G.  Connette 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

2-4 

Wisconsin  R.  R.  C. 

(Frame) 

2 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

2 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Cables 

Underground        (high 

tension)       .... 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

Underground          (low 

tension)       .... 

50%  mainte- 

nance   cost 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

(Aerial  lead  covered)  . 

6| 

Wisconsin  R.  R.  C. 

(Underground         lead 

covered)      .... 

4 

Wisconsin  R.  R.  C. 

(Underground       lead 

covered)      .... 

5 

St.  Louis  P.  S.  C. 

Union.  Elec.  L.  &  P.  Co. 

Coal  and   Ash  Handling 

Machinery      .... 

7 

Traction  Val.  Comm. 

Chicago  Con.  Trac.  Co. 

5 

Henry  Floy 

3d  Ave.  Case,  adopted 
by  P.  S.  C,  N.Y. 

10 

Wisconsin  R.  R.  C. 

'  For  electric  light  stations;    for  waterworks  the  Wise.  R.  R.  Comm.  uses  5  and  4. 


DEPRECIATION 


195 


APPROVED   RATES  USED   IN   ESTIMATING  THEORETICAL  DEPRECIATION 

By  Henry  Floy,  Trans.  Am.  In.st.  E.  E.,  June,   1911 

(Maintenance  not  included) 


Depreciation 

PER  Cent  per 

Property 

Year 

Authority 

Remarks 

Straight  Line 

Condensers 

4 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

5 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.  C,  N.Y. 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

5 

Wisconsin  R.  R.  C. 

10 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

61 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Conduits 

1 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

2 

Wisconsin  R.  R.  C. 

2 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Cress  Arms 

8J-12J 

Wisconsin  R.  R.  C. 

Engines  (Steam)     .     .     . 

3-5 

Traction  Val.  Comm. 

Chicago  Con.  Traction  Co. 

(Steam) 

5-7^ 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.  C,  N.Y. 

(Steam) 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

(Gas) 

6| 

Wisconsin  R.  R.  C. 

(Steam,  slow  speed)     . 

5 

Wisconsin  II.  R.  C. 

(Steam,  high  speed)     . 

6| 

Wisconsin  R.  R.  C. 

5 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

6| 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Feeders 

Dependent  on 

(W.  P.  Insulation) 

observed  wear 

Traction  Val.  Comm. 

Chicago  Con.  Trac.  Co. 

6i 

Wisconsin  R.  R.  C. 

Foundations  —  Machinery 

Same  as  life  of 
apparatus 

supported 

Traction  Val.  Comm. 

Chicago  Con.  Trac.  Co. 

Same  as  life  of 

apparatus 

supported 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

Fuel   Oil   Handling   Ma- 

chinery        

4 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

Generators 

3-8 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

5 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.  C.  N.Y. 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C.  N.Y. 

(Modern  type)    .     .     . 

5 

Wisconsin  R.  R.  C. 

(Obsolete  type) 

c>l 

Wisconsin  R.  R.  C. 

(Steam  turbo)     .     .     . 

h 

Wisconsin  R.  R.  C. 

10 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

61 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

196 


EXGINEERING  VALUATION 


APPROVED  RATES   USED  IN   ESTIMATING  THEORETICAL  DEPRECIATION 

By  Henry  Floy,  Trans.  Am.  Inat.  E.  E.,  June,  1911 

(Maintenance  not  included) 


Depreciation 

PER  Cent  per 

Property 

Year 

Authority 

Remarks 

Straight  Line 

Heaters 

4-6 

Traction  Val.  Comm'. 

Chicago  Con.  Tract.  Co. 

(Feed  water,  closed)    . 

3J 

Wisconsin  R.  R.  C. 

(Feed  water,  open) 

31 

Wisconsin  R.  R.  C. 

Meters 

(Electric  switchboard) 

5 

Wisconsin  R.  R.  C. 

(Electric  service)     .     . 

6f 

Wisconsin  R.  R.  C. 

(Electric)        .... 

8 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Motors    (Railway)       .     . 

3i 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

(Railway)      .... 

By  inspection 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.CN.Y. 

(Railway)       .... 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  xN.Y. 

5 

Wisconsin  R.  R.  C. 

(Railway)      .... 

10 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

Paving 

50%   wearing 

value 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.CN.Y. 

50% 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

Piping  and  Covering   .     . 

4-4^ 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

6 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.  C,  N.Y. 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

5 

Wisconsin  R.  R.  C. 

5 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

6! 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Poles  (Steel)      .... 

2 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

(Wood  ic  concrete) 

5 

Wisconsin  R.  R.  C. 

(Wood  in  earth)       .     . 

5}-8§ 

Wisconsin  R.  R.  C. 

(Iron) 

2J 

Wisconsin  R.  R.  C. 

(Wooden)       .... 

10 

Arbitrators 

Street  Lighting  Contro- 
versy, Atlanta,  Ga.,  1899. 

Pumps 

5 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

5 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.CN.Y. 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C  N.Y. 

(Small  steam)     .     .     . 

6f 

Wisconsin  R.  R.  C. 

5 

Arbitrators 

Street  Lighting  Contro- 
versy, Atl.anta,  Ga.,  1899. 

6! 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Rolliny  Stock 

(Open  car  bodies)   .     . 

4 

Traction  Val.  Comm. 

Chic.  Con.  Tract.  Co. 

DEPRECIATION 


197 


APPROVED   RATES  USED  IN  ESTIMATING  THEORETICAL  DEPRECIATION 

By  Henry  Floy,  Trans.  Am.  Inst.   E.  E.,  June,   I'Jll 
(Maintenance  not  included) 


Depreciation 

Per  Cent  per 

Property 

Year 

AUTHORITV 

Remarks 

Straight  Line 

(Open  trailer  bodies)   . 

4 

Traction  Val.  Comm. 

Chic.  Con.  Tract.  Co. 

(Closed  car  bodies) 

5 

Traction  Val.  Comm. 

Chic.  Con.  Tract.  Co. 

(Trucks) 

H 

Traction  Val.  Comm. 

Ch    .  Con.  Tract.  Co. 

(Closed  and  open  cars) 

H 

B.  J.  .Vruold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.  C,  N.Y. 

(Trucks) 

3^ 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.  C,  N  Y. 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 

(Car  bodies  and  equip- 

P. S.  C,  N.Y. 

ment)     

6f 

Wisconsin  R.  R.  C. 

Stack    

3 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

(Steel) 

10 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 

Stokers 

adopted  by  P.  S.  C,  N.Y. 

(Fixed  parts)       .     .     . 

5 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

(Moving  parts)        .     . 

20 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

Storage  Batteries     ,     .     . 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.  Y. 

6| 

Wisconsin  R.  R.  C. 

5 

St.  Louis  R.  R.  C. 

Union  Elec.  L.  &  P.  Co. 

Switchboard  and  Wirinu 

3 

Traction  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

6 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 
adopted  by  P.  S.  C.  N.Y. 

5 

Henry  Floy 

3d  Ave.  Case,  adopted  by 
P.  S.  C,  N.Y. 

(Modern  type)    .     .     . 

5 

Wisconsin  R.  R.  C. 

(Obsolete  type)        .     . 

6f 

Wisconsin  R.  R.  C. 

8 

St.  Louis  P.  S.  C . 

Union  Elec.  L.  &  P.  Co. 

Telephones 

10 

Wisconsin  R.  R.  C. 

Track  (Rail  joints)      .      . 

5 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

(Ties) 

5 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

(Rails)        

Dependent  on 

observed  wear 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

(Special  work)     .     .     . 

Dependent   on 

observed  wear 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

(Straight    and    special 

work) 

50%     wearing 

value 

B.  J.  Arnold 

Coney  Island  &  Brooklyn, 

work) 

50%      wearing 

adopted   by  P.  S.  C,  N.Y. 

value 

Henry  Floy 

3d  Ave.  Ca.'^o.  adopted  by 

(Special  work)     .     .     . 

8| 

Wisconsin  R.  R.  C. 

P.  S.  C,  N.Y. 

(Straight  track)       .     . 

5h 

Wisconsin  R.  R.  C. 

Transformers      .... 

(Station  service)      .     . 

5 

Wisconsin  R.  R.  C. 

6| 

Wisconsin  R.  R.  C. 

6| 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

Turbines 

(Steam) 

5 

Wisconsin  R.  R.  C 

(Water) 

3* 

Wisconsin  R.  R.  C. 

(Steam) 

6! 

St.  Louis  P.  S.  C. 

Union  Elec.  L.  &  P.  Co. 

198 


EXGIXEERIXG  VALUATION 


Depreciation 

Per  Cent  per 

PnopERTr 

Year 

ACTHORITy 

Remarks 

Straight  Line 

Wire 

Trolley 

Allowance    of 
80.5    lbs.     per 
1000     ft.     for 
wearing   value 
of  No.  0    wire 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

Trolley 

Allowance     of 

106.8   lbs.   for 

No.  00 

Tract.  Val.  Comm. 

Chicago  Con.  Tract.  Co. 

Trolley 

From  observa- 

B. J.  Arnold 

Coney  Island  &  Brooklyn, 

tion 

adoptedby  P.S.C,  N.Y. 

Trolley 

No.   0,     under 
1  min.      head- 
way 50  % 

Wisconsin  R.  R.  C. 

Trolley 

No.  00,  under 
1  min.      head- 
way 40  % 

Wisconsin  R.  R.  C. 

Trolley 

No.  000,  under 
1  min.      head- 
way 33i  % 

Wisconsin  R.  R.  C. 

Weatherproof   .    .    . 

50%     mainte- 

Henry Floy 

3d  Ave.  Case,  adopted  by 

nance  cost 

P.  S.  C,  N.Y. 

Weatherproof    .    .    . 

&\7o 

Wisconsin  R.  R.  C. 

Weatherproof    .     .     . 

n% 

Arbitrators 

Street  Lighting  Con.,   At- 
lanta, Ga.,  1899. 

In  the  Milwaukee  Three-Cent  Fare  case,  a  number  of  engineers 
testified  as  to  rates  of  depreciation,  and  these  have  been  tabulated 
in  comparison  with  rates  specified  by  other  engineers  and  com- 
panies.    The  table  follows : 

RATES  OF  DEPRECIATION  COMPARED  FOR  THE  MILWAUKEE  CASE 


Buildings 

Improvements 

Track,  Main 

Special  Work 

Paving      .     . 

Cars,  Bodies  and  Trucks 

Electrical  Equipment 

Electrical  Distribution 

Poles  —  Iron     .     .     . 

Poles  —  Wood       .     . 

Overhead  Equipment 

Wiring,  etc 

Feeders  and  Cables    . 


Cooley-Beegs-Starret- 
Pence 


Milwaukee  Three-Cent 
Case 


4&2 

8 


10 
8 


8.5 

8.5 
6.66 

8.5 
8.5 


2 
12.5-7 
6.66-5 


2.5 
8J-6J 


Chicago 

Offi- 
cials 

U.T.  Co. 
Stone  & 
Webster 

2 

2 

3 

7.75 

7.2 

7.5 

7.75 

7.2 

12 

10-4 

10-4 

10 

5 

5 

7.5 

8.5-G! 

8.5-6§ 

6 
7.5 

5 

5 

7.5 

14-10 

14-10 

5 

Arnold 


Chicago 
Appraisals 
4  Cases 


Rl.  Wear  Sub.-5 
10  years 
10-25  Grt. 
As  Shown 
12-25-30 

2.5 

20  Total 


IJ 


RATES  OF  DEPRECIATION  COMPARED  FOR  THE  MILWAUKEE  CASE  — 

Continued 


Power  Plant      .     .     .     . 

Cranes 

Engines 

Boilers 

Stacks 

Stokers 

Economizers      .     .     .     . 

Breechings 

Pumps 

Piping  and  Covering  . 

Heaters 

Coal  and  Ash  Machinery 

Generators 

Switchboards  .  .  .  . 
Storage  Batteries  . 
Foundations  .  .  .  . 
Storage  Bins  .  .  .  . 
Shop  Tools  and  Ma- 
chinery       

Furniture  and  Fixtures   . 
Telephone  System      .     . 
Horses  and  Wagons    . 
Miscellaneous    .     .     .     . 


Cooley-Beeqs-Starret- 
Pencb 


Milwaukee  Case 


6.66-5 
8.5-61 


20 
5 
2 


10-3? 


Chicago 

Offi-  I 

CIAI.S 

a  6 

a-8  s 

O  a) 

6.66 

5 

5 

6.66 

5 

7.5 

6.66 

5 

7.5 

6.66 

5 

10 

6.66 

5 

7.5 

6.66 

6 

5 

6.66 

5 

10 

5 

2 

7.5 

5 

7.5 

.\  Its- OLD 


Chicago 

Appraisals 

4  Casea 


2 

2 

3-5 

3i 

Steel-7 

Brick-3 

25  Total 

5-10 

10-SteeI 

5 

3i 

3 

7 

5 

2 

6 
3-10 

As  Shown 
As  Shown 

As  Shown 
5 


The  following  table  shows  the  rates  used  by  Marwick,  ]\Iitchell 
&  Co.,  a  prominent  firm  of  accountants,  in  the  appraisal  of  a  large 
street  railway  system. 

RATES  OF  DEPRECIATION,  EXCLUSIVE  OF  MAINTENANCE  CHARGE 

Office  furniture  and  fixtures ").()  ptM-  rent 

Buildings      .     .     .     .    ' 2.5  per  cent 

Wagons  and  horses 10.0  per  cent 

Roadway 

Rails  in  city  streets 4.5  per  cent 

Rails  in  country  roads 3.5  per  cent 

Rails  in  private  right-of-way 3.5  per  cent 

Substructure  in  city  streets 4.5  per  cent 

Substructure  in  country  roads 7.0  per  cent 

Substructure  in  private  right-of-way 10.0  per  cent 

Special  work 9.0  per  cent 

Paving 

Block 2.5  per  cent 

Asphalt 7.0  per  cent 

199 


200  EXGIXEERIXG  VALUATION 

Paving 

Brick,  macadam,  etc =     .     .     .      4.5  per  cent 

Tracks  in  car  houses      .    ...    o     ......     .      3.5  per  cent 

Fences 

Snow 10.0  per  cent 

Other 5.0  per  cent 

Power  House  and  Substation  Equipment 


.     .      4.5  per  cent 


4.5  per  cent 


Engines 

Boilers 

Heaters 

Conveyors 

Pumps  and  auxiliaries 

Rotaries 

Transformers 

Switchboards 

Auxiliaries 

Storage  batteries       3.0  per  cent 

Turbines  and  generators 6.0  per  cent 

Rolling  Stock 

Cars  (including  all  equipment) 5.0  per  cent 

Utility  equipment      ....„.<,. 5.0  per  cent 

Shop  Machinery 

Machine  tools       5.0  per  cent 

Hand  tools       o 10.0  per  cent 

Line 

Poles  — iron 2.0  per  cent 

Poles  — wood 7.0  per  cent 

Wire  —  trolley 5.0  per  cent 

Wire— guard 10.0  per  cent 

Spans  with  cars,  etc 5.0  per  cent 

Conduits  and  manholes 2.0  per  cent 

Feeder  cables,  overhead 3.0  per  cent 

Feeder  cables  loaded,  in  ducts 4.0  per  cent 

Transmission  lines 2.0  per  cent 

Special  work 8.0  per  cent 

Signals,  telegraph,  etc 10.0  per  cent 

Bridges 2.5  per  cent 


DEPRECIATION 


201 


The  two  tables  following  have  been  compiled  by  Mr.  George 
W.  Cravens  and  carry  the  comparison  still  farther. 


DEPRECIATION 

By  George  W.  Cravens,  Electrical  Review,  April  23,  1910 

TABLE   I 

Percentage  Depreciation  per  Annum 


Items 

z 
c 

h 

K  00 

oi 

Is 

s 

o 

Z   . 

o  o 

^z 

15 
8^ 

6-« 

"  2 

si 

s 

00 

o 
z 

a 
o 
< 

K 

> 
< 

H 
o 

ig 
cog 

a 
> 
< 

z 
o 

m 
% 

Q 

13 

n 

a  ts 

3) 

§ 

H 

o 

Ph  0) 
D 

a 
z 

go 

b: 

g 

J  P 
§^ 

Buildings 

2 

3 

2 

2.5 

2.5 

1-2 

2 

1-2 

2 

2 

Boilers      .     . 

3.5-10 

6.6 

7.5 

6.6-8.5 

5 

5 

8-10 

5 

2.5-3.3 

4-6.6 

7.5 

Steam  Piping 

3.5 

6.6 

7.5 

5 

5 

5 

8-10 

5 

2.5-3.3 

5-8 

5 

Auxiliaries    . 

5-10 

6.6 

5 

6.6-8.5 

5 

5 

8-10 

5 

4-6.6 

3-5 

7.5 

Steam 

Engines     . 

3-10 

6.6 

5 

5-6.6 

5 

5 

4-6 

5 

2.5-5 

4-6.6 

5 

Steam     Tur- 

bines    .     . 

5 

5 

5 

7-9 

5 

2.5-5 

4 

4 

Belted  Gene- 

rators  .     . 

5-10 

6.6 

7.5 

5 

5 

5 

5-10 

5 

6.6 

3.3-4 

7.5 

Direct    Con- 

nected 

Generators 

5 

6.6 

7.5 

5 

5 

5 

4-8 

5 

4 

3.3-4 

5 

Wires       and 

Cables 

2 

6.6 

5 

2 

5 

3 

3-5 

5 

4-6.6 

5 

5 

Switchboards, 

etc.  .    .     . 

2 

6.6 

5 

2 

7.5 

5 

8-10 

5 

2-5 

5 

Rotary  Con- 

verters 

6.6 

5 

5 

5 

5 

8-10 

5 

4-5 

4 

5 

Transformers 

6.6 

5 

5 

5 

5 

5-6 

5 

3-5 

4 

5 

Motors     .     . 

5-10 

6.6 

5 

5 

5 

5 

5-8 

5 

4-6.6 

5 

5 

Storage  Bat- 

teries   .     . 

6.6 

10 

5 

5 

9-11 

5 

5-10 

6.6 

10 

Overhead 

Systems     . 

10-14 

7.5 

3 

4-8 

10-14 

5-10 

10 

Cars    .     .     . 

5-8.5 

6-7.5 

5-6.6 

10 

7.5 

4-6 

5-8.5 

7.5 

Trackwork    . 

7.75 

7.5-12 

5 

5 

8 

7-13 

7.2 

7.5 

Shop  Equip- 

ment    .     . 

3-10 

5 

7.5 

3.3-10 

7.5 

7.5 

12-15 

5 

4-10 

7.5 

Supplies  and 

Miscella- 

neous   .     . 

5 

5 

5 

7.5 

1.5-2 

5 

5 

202 


EXGIXEERIXG  VALUATION 


TABLE    II 
Percentage  Depreciation  for  Given  Service 


Items  of  Equipment 


Boilers.  Water  Tube   .     .     .     . 

Boilers,  Fire  Tube 

Piping,  Steam  and  Water     .     . 

Auxiliaries,  Steam 

Engines,  Steam 

Turbines,  Steam 

Generators,  Belted 

Generators,  Direct  Cormected   . 

Wires  and  Cables 

Switchboards  and  Instruments 
Rotary  Converters      .... 

Transformers 

Motors,  A.  C.  and  D.  C.      .     . 

Storage  Batteries 

Overhead  Systems       .... 
Cars  and  Equipments 
Trackwork,  Ballast,  etc. 
Shop  Equipment,  Tools,  etc.   . 


Light  or 

Heavy  or 

Intermittent 

Continuous 

Service 

Service 

4-6.6 

5-8.3 

5-6.6 

6.6-10 

4-5.5 

5.5-8.3 

3-5 

4-6.6 

4-5 

5-6.6 

3^ 

4-5 

4-6.6 

5-8.3 

3-5 

4-6.6 

3-5 

4-6.6 

2-5 

5-8.3 

3-5 

4-6.6 

3-5 

4-6.6 

4-6.6 

5-8.3 

5-6.6 

6.6-10 

4-10 

8.3-12.5 

5-8.3 

6.6-10 

5-8.3 

7.5-12.5 

5-10 

7.5-15 

The  Chicago  Telephone  Commission  in  1908  gave  the  following 
table  of  Hfe,  depreciation,  and  salvage. 

LIFE  AND  DEPRECIATION  OF  TELEPHONE  WIRES 


Property 


Conduit,  main,  clay  in  concrete     .    . 
Conduit,  main,  fiber  in  concrete    .    . 

Conduit,  subsidiary 

Cable,  main 

Cable,  subsidiary 

Aerial  cable 

Poles,  including  cross  arms    .... 

Aerial  strand 

Aerial  cable,  terminals 

Aerial  wire,  copper 

Drop  wires 

Subscribers'  station  instruments    .     . 
Private  branch  exchange  switchboards 
Central  office  switchboards   .... 

Buildings,  fireproof 

Teams,  tools,  furniture,  etc 


Life 

IN 

Years 

Per  Cent  to 
Deprecia- 
tion 
Account 

Per  Cent 
Salvage 

Per  Cent 
TO  Recon- 
struction 

AND 

Insurance 

50 

.89 

0 

li 

20 

3.72 

0 

li 

20 

3.72 

0 

2 

20 

3.72 

— 

2 

15 

5.38 

40 

2 

15 

5.38 

— 

3 

10 

8.73 

0 

4i 

12 

7.05 

0 

3i 

12 

7.05 

0 

3 

15 

5.38 

70 

3 

8 

11.25 

15 

4 

10 

8.73 

5 

2 

8 

11.28 

20 

2 

8 

11.25 

20 

2 

40 

1.33 

0 

1 

4 

23.92 

10 

0 

DEPRECIATION 


203 


The  following  table  is  one  compiled  by  "  data  "  from  various 
sources  showing  life  and  rates  chargeable  for  depreciation  (ui 
telephone  plants. 

TELEPHONE  PLANT,   LIFE   AND   DEPRECIATION   OF,   FROM    "DATA."< 
ANNUAL  DEPRECIATION  — PER  CENT  OF  FIRST  COST  IN   PLACE 


Life 

Junk  Value 

Without 

Class  of  Plant 

%  OF  First 

Cumu- 

With 2  % 

With  3  % 

With  6  % 

IN 

Years 

Cost  in 

lative 

Interest 

Interest 

Interest 

Place 

Interest 

Buildings: 

Fireproof    .... 

25-50 

25 

3.0-1.5 

2.3-0.9 

2.1-0.7 

1.4-0.25 

Mill  construction    . 

25 

20 

3.2 

2.8 

2.2 

1,5 

Cables: 

Aerial  exchange 

12-15 

30 

5.8-4.7 

5.2-4.0 

4.9-3.8 

4.1-3.0 

In  buildings   .     .     . 

10 

30 

7 

6.4 

6.1 

5.3 

Underground      .     . 

— 

— 

— 

— 

— 

— 

Exchange,  main      . 

20-25 

40 

3.0-2.4 

2.5-1.9 

2.2-1.6 

1.6-1.1 

Exchange,  subsidi- 

ary       

13-20 

40 

4.6-3.0 

4.1-2.5 

3.8-2.2 

3.2-1.6 

Toll 

30 

40 

2.0 

1.5 

1.3 

0.76 

Submarine     .    .    . 

10 

0 

10.0 

9.1 

8.7 

7.6 

Cable  terminals    .    . 

10-12 

0 

10.0-8.3 

9.1-7.5 

8.7-7.0 

7.6-5.9 

Conduits,  main: 2 

Clay  vitrified      .     . 

50 

0 

2.0 

1.2 

0.89 

0.34 

Concrete    .... 

50 

0 

2.0 

1.2 

0.89 

,0.34 

Fiber 

20 

0 

5.0 

4.1 

3.7 

2.7 

Iron 

20 

0 

5.0 

4.1 

3.7 

2.7 

Wood,  creosoted     . 

20 

0 

5.0 

4.1 

3.7 

2.7 

Conduits,  subsidiary 

15 

0 

6.7 

5.8 

5.4 

4.3 

Furniture  and  fixtures 

10 

0 

10.0 

9.1 

8.7 

7.6 

Poles: 

Cedar,  35  feet  and 

under       .... 

10-15 

0 

10.0-6.7 

9.1-5.8 

8.7-5.4 

7.6-4.3 

Cedar,  over  35  feet 

15-20 

0 

6.7-5.0 

5.8-4.1 

5.4-3.7 

4.3-2.7 

Chestnut,    35    feet 

and  under    .     .     . 

8-12 

0 

12.5-8.3 

11.6-7.5 

11.2-7.0 

10.1-5.9 

Chestnut,  over   35 

feet 

12-15 

0 

8.3-6.7 

7.5-5.8 

7.0-5.4 

5.9-4.3 

Pine, creosoted  .     . 

20 

0 

5.0 

4.1 

3.7 

2.7 

Poles  and  cross  arms, 

average  exchange 

10 

0 

10.0 

9.1 

8.7 

7.6 

Poles  and  cross  arms. 

average  toll     .     . 

15 

0 

6.7 

5.8 

5.4 

4.3 

Power  plants: 

Switchboards,  cen- 

tral office     .     .     . 

8-10 

15 

10.6-8.5 

9.9-7.8 

9.6-7.4 

8.6-6.4 

Subscribers'     station 

equipment: 
Instruments  .     .     . 

8-10 

10 

11.2-9.0 

10.58-.2 

10.1-7.9 

9.1-6.8 

P.    B.    X.    switch- 

boards    .... 

10 

10 

9.0 

8.2 

7.9 

6.S 

Tools  and  teams    .     . 

5 

0 

20.0 

19.2 

18.8 

17.7 

Wire  exchange  lines: 
Copper,  bare .     -     . 

10-15 

40 

6.0-4.0 

5.5-3.5 

5  2-3.2 

4.5-2.6 

Copper      insulated 

tw.  pr 

Iron,  bare  .... 

10 

10 

9.0 

8.2 

7.8 

6.8 

8-10 

0 

12.5-10.0 

11.6-9.1 

11.2-8.7 

10.1-7.6 

Wire  toll  lines: 
Copper,  bare .     .     . 
Iron,  bare  .... 

40 
15 

40 
0 

1.5 
6.7 

1.0 
5.8 

0.8 
5.4 

0.39 
4.3 

1  Adapted  from  practice  of  A.  T.  &  T.  Co..  Wisconsin  R.  R.  Commission  and  others. 

2  Includes  manholes. 


204  ENGINEERING  VALUATION 

u.  s.  government  allowance  for  depreciation 

Buildings  J'eT.'^H'L 

Brick,  occupied  by  owner    . 1    to  Ij 

Brick,  occupied  by  tenant 1|  to  Ij 

Frame,  occupied  by  owner 2    to  2^ 

Frame,  occupied  by  tenant 2|  to  3 

LIFE  OF   ITEMS  OF  PHYSICAL  PLANT 

Following  is  a  good  average  estimate  of  the  life  of  the  different 
items  going  to  make  up  the  physical  plant  of  the  following  named 
properties : 

Waterworks. 

Power  plants. 

Buildings. 

Electric  light  and  railways. 

Telephones. 

Gas  plants. 

Some  of  the  items  have  been  copied  directly  from  a  "Memo- 
randum regarding  values  used  for  lives  of  structures  and  equip- 
ment," gotten  out  by  the  Joint  Engineering  Department  of  the 
Wisconsin  Commissions. 

Waterworks  years*  life 

Wells,  driven  or  drilled 50  to    75 

Wells,  large  open,  stone  or  brick  walled 75  to  100 

Suction  piping  and  intakes 30  to    50 

Stand  pipes 30  to    50 

Reservoirs 50  to  100 

Filter  beds 30  to    50 

Distribution  System,  for  Waterworks 

Cast-iron  mains,  including  fittings  and  valves 75  to  100 

Wrought-iron  mains  and  services,  galvanized  and  including 

valves  and  fittings       30  to    50 

Cast-iron  mains  and  services,  black 25  to    35 

Services  to  buildings,  lead 50  to  100 

Power  Plant  Equipment 

Gas  engines 10  to  15 

Corliss  slow  speed  engines 25  to  30 

High  speed  engines 15  to  20 

Waterworks,  pumping  engines,  duplex 20  to  25 

triplex 20  to  30 

flywheel 30  to  40 


DEPRECIATION  205 

Boiler  feed  pumps        15  to  20 

Geared  power  pumps        20  to  30 

Centrifugal  pumps       20  to  30 

Boilers,  fire  tube 10  to  15 

Boilers,  water  tube 20  to  30 

Heaters 20  to  30 

Condensers 20  to  30 

Coal  and  ash  conveyers         10 

Turbine  water  wheels,  built  before  1900       25  to  40 

Turbine  waterwheels,  built  after  1900 30  to  50 

Jack  shaft       . 20  to  40 

Piping        20  to  30 

Pipe  covering same  as  pipe 

Leather  belting        20  to  25 

Generators,  motors  and  rotaries 

modern 20 

obsolete 15 

Static  transformers,  including  regulators  and  compensators, 

station  type 20 

Turbo  generators 20 

Switchboard  and  wiring  complete 

modern  type 20  to  30 

obsolete  t3T)e 15  to  20 

Switchboard  and  instruments 

modern  type 20  to  30 

obsolete  type 15  to  20 

Storage  batteries 10  to  15 

Lightning  arresters,  station  t3T3e 15  to  20 

Foundations  for  machinery  give  same  life  as  the  machine  they  support. 

Buildings  (Wisconsin  Commissions) 

First  class  stone  and  brick  (office  buildings)         75 

Second  class  shops,  car  barns  and  power  stations      ....  50 

Brick  gas  retort  houses 30 

Frame  dwellings 35 

Frame  stables  and  coal  sheds    .     .     .     , 20  to  25 

Electric  Light  and  Railways 

Copper  wire,  weatherproof  insulation 10  to  15 

Cable,  lead  covered,  aerial 10  to  15 

Cable,  lead  covered,  underground,  in  conduits 20  to  25 

Conduit 30  to  50 

Manholes        30  to  50 

Poles,  cedar,  in  earth        10  to  18 

Poles,  cedar,  in  concrete        12  to  20 


206  EXGIXEERIXG  VALUATION 

Poles,  iron  in  concrete 15  to  30 

Pole  anchors  and  guys 10  to  20 

Cross  arms 10  to  15 

Service  transformers 10  to  15 

Fuse  boxes 10  to  12 

Lightning  arresters 10  to  12 

Arc  lamps  and  span  equipment 10  to  15 

Nernst  lamps 8  to  10 

Ser\-ice  wattmeters       10  to  15 

Railway  spans  and  bracket  equipment         15  to  20 

Trolley  wire ;  life  depends  on  headway ;  should  never  be  worn 

to  less  than  75  per  cent  of  its  original  size. 

#  0  wire  at  1  minute  headway,  life  2  years. 
#  00  wire  at  1  minute  headway,  life  2^  years. 
#  000  wire  at  1  minute  headway,  Ufe  3  years. 

Telephone  Equipment  (Wisconsin  Commissions) 

Central  office  equipment  including  distributing  frame       .     .  10 

Power,  plant  and  wire 8 

Poles 12  to  15 

Cross  arms 8  to  12 

Iron  wire        8  to  15 

Copper  wire        20 

Weatherproof  iron  wire         15 

Cables,  lead  covered,  aerial        12 

Cables,  lead  covered  underground 20 

Subscribers'  sets 10 

Furniture  and  tools 7 

Gas  Plants  (Wisconsin  Commissions) 

Benches 25 

Scrubbers  and  condensers 30 

P.  and  A.  tar  extractors 40 

Cast-iron  washers 40 

Exhausters 25 

Purifiers,  modern 50 

Purifiers,  old  type,  according  to  size  and  condition        ...  — 

Cast-iron  gas  connections,  within  the  plant 50 

Station  meter  cases 50 

Station  meter  drums         20 . 

Ammonia  concentrators        15 

Ammonia  storage;  tanks,  wrought  iron  or  steel 15 

Tar  and  ammonia  wells         50 

Water  gas  machines  complete        30 

Centrifugal  blowers 15 


DEPRECIATION  207 

Holders 50 

Governors 50 

Cast-iron  mains.     3"  and  4" 50 

Cast-iron  mains.     6"  and  larger 75 

Wrought-iron  and  steel  mains  under  3" 20 

Wrought-iron  and  steel  mains  over  3" 30 

Services 20 

Consumers'  meters       25 

Consumers'  governors 25 

Retort  house  floors,  depending  on  construction 15  to  30 

Foundations  for  machinery,  same  life  as  macliine  they  support. 


Waterworks  Property,  Limits  of  Useful  Life 
By  Leonard  Metcalfe,  p.  24,  Vol.  LXIV,  Trans.  Am.  Soc.  C.E.,  1909 

Useful  Life 

Reservoirs  ^       50  to  100  years 

Standpipes        25  to  40  years 

Masonry  buildings 40  to  50  years 

Wooden  buildings 20  to  50  years 

Cast-iron  pipe  of  large  diameter 50  to  75  years 

Cast-iron  pipe  of  small  diameter 20  to  40  years 

Steel  pipe 25  to  50  years 

Wood  stave  pipe 20  to  30  years 

Wrought-iron  service  pipe 15  to  30  years 

Meters 20  to  30  years 

Hydrants 40  to  50  years 

Gates       40  to  50  years 

Pumping  and  auxiliary  machinery 20  to  30  years 

Steam  engines 15  to  25  years 

Boilers 12  to  16  years 

Electrical  machinery 20  to  30  years 

Renewals  in  Chicago  Traction  System 

An  official  definition  of  renewals  to  street  railways  has  been 
issued  by  the  Board  of  Supervising  Engineers  of  the  Chicago 
Traction  System,  in  the  form  of  a  book  which  specifically  states 
what  expenditures  are  renewals,  and  what  should  be  charged  to 
maintenance.  Each  railway  company  is  required  to  deposit  in 
some  trust  company  or  other    fiduciary  institution   8  per  cent 

1  Except  where  subject  to  hea\^  deposit  of  silt. 


208  ENGINEERING  VALUATION 

of  its  gross  receipts  to  cover  renewals  to  the  system,  and  no  pay- 
ments are  ever  to  be  made  from  this  fund  without  the  written 
sanction  of  the  Board  of  Supervising  Engineers  who  are  to  deter- 
mine if  the  expenditure  is  properly  chargeable  to  renewals.  The 
deposit  of  this  fund  creates  confidence  in  the  public  mind  that 
the  renewals  and  replacements  will  be  kept  up  and  that  improve- 
ments will  be  made  as  required.  It  is  early  yet  to  say  whether 
this  8  per  cent  will  be  large  enough  to  cover  all  renewals  as  time 
goes  on,  but  the  board  has  power  to  increase  the  rate  at  such 
time  as  it  may  be  proved  to  be  too  small. 


Renewals^ 

"The  traction  ordinances  of  February  11,  1907,  refer  to  the  subject 
of  Renewals  in  the  following  manner : 

"Section  7.  The  cost  of  renewals  shall  be  paid  as  provided  in  Section 
16  hereof,  but  such  expenditures  (and  onl}^  such  expenditures)  as  are 
made  for  the  purpose  of  extensions  or  additions  to  property  shall  be 
thereafter  considered  as  additions  to  capital ;  provided,  however,  that 
in  the  replacement  of  any  principal  part  of  the  property,  either  existing 
or  hereafter  acquired,  there  shall  be  charged  to  capital  the  excess  amount 
that  the  new  property  cost  over  the  original  cost  of  the  property  dis- 
placed. 

"Section  10.  The  company  shall  deposit  with  one  or  more  of  the 
said  depositaries  in  a  separate  fund,  appropriately  designated,  a  sum 
equal  to  eight  (8)  per  cent  of  the  gross  receipts  of  said  street  rail- 
ways and  property  for  the  preceding  month,  which  shall  constitute  a  re- 
serve fund  for  taking  care  of  renewals  and  depreciation  of  said  street 
railways  and  property.  .  .  .  No  payments  shall  be  made  by  said 
company  out  of  said  fund,  except  on  the  'svTitten  certificate  of  the 
Board  of  Supervising  Engineers,  for  renewals,  which  are  herel)}''  defined 
to  be  the  replacement  of  any  principal  part  of  said  street  railways  or 
of  their  equipment  or  appurtenances." 

The  two  main  points  to  be  construed  by  the  Board  under  the  fore- 
going provisions  of  the  ordinance  are : 

(a)   Original  cost. 

(6)   Principal  part. 

These  points  and  other  collateral  issues,  particularly  the  distinction 
between  Renewals  and  that  of  Maintenance  and  Repairs,  were  discussed 
at  various  times  by  the  Board  throughout  the  year  1910,  which  dis- 
cussions have  led  to  the  following  conclusions : 

*  As  defined  by  Board  of  Supervising  Engineers,  Chicago  Traction  System. 


DEPRECIATION  209 


General  Rulings 

1.  The  "original  cost"  of  any  property  renewed  shall  be  the  cost  of 
the  property  displaced. 

2.  Property  which  has  not  been  Rehabilitated.  The  T.  V.  C.  value  shall 
be  taken  as  the  "original  cost." 

3.  Property  that  has  been  Rehabilitated.  The  rehabilitated  cost, 
but  not  the  rehabilitated  cost  plus  the  T.  V.  C.  value,  shall  be  taken  as 
the  "original  cost." 

4.  Property  Semi-rehabilitated.  The  T.  V.  C.  value,  plus  the  cost 
of  semi-rehabilitation,  less  the  T.  V.  C.  value  of  the  part  replaced  in  the 
process  of  semi-rehabilitation,  shall  be  taken  as  the  "original  cost." 

5.  Paving  which  has  not  been  rehabilitated.  25.29  per  cent  of  the 
T.  V.  C.  value  shall  be  taken  as  the  "original  cost,"  that  being  the 
estimated  amount  included  in  the  allowed  valuation  of  $50,000,000.00 
for  the  Chicago  City  Railway  and  Chicago  Railways  Companies' 
property.  5.08  per  cent  of  the  T.  V.  C.  value  shall  be  taken  as  the 
"original  cost"  for  Calumet  &  South  Chicago  Railway  Company. 
T.  V.  C.  values  shall  be  allowed  as  shown  in  the  T.  V.  C.  reports  for 
the  Southern  Street  Railway  and  Consolidated  Traction  properties. 

6.  The  first  paragraph  of  Section  15  of  the  ordinances  shall  be  con- 
strued as  referring  to  repairs  only. 

7.  The  minimum  charge  to  Capital  or  Renewals  shall  be  S200.00, 
this  rule  being  adopted  for  the  purpose  of  simplifying  accounting. 

8.  In  case  of  renewal  in  kind  there  shall  be  no  addition  to  Capital 
Account,  except  in  special  cases,  which  shall  be  considered  and  ruled 
upon  by  the  Board  at  the  time  application  for  work  order  is  submitted 
by  the  companies.  By  renewal  in  kind  is  meant  the  replacement  of 
existing  property  by  new  property  of  similar  general  character  and  con- 
struction. 

9.  Salvage  in  all  cases  shall  be  credited  to  the  Renewal  Fund. 

10.  Special  cases  may  arise  in  connection  with  all  classes  of  recon- 
struction work  to  which  these  rules  cannot  be  specifically  applied.  In 
such  cases,  the  Board  shall  give  special  consideration  as  to  the  proper 
classification  of  the  cost  of  such  work  at  the  time  application  for  work 
order  is  submitted  by  the  companies. 


Note.    The  initials  "  T.  V.  C."  refer  to  the  respective  Traction  Valuation  Commis- 
sion reports  placing  values  on  the  several  railway  properties,  as  follows : 

Chicago  City  Railway  Company $21,000,000.00 

Chicago  Railways  Company 29,000,000.00 

Calumet  and  South  Chicago  Railway  Company 5,000,000.00 

Southern  Street  Railway  Company 775,000.00 

Chicago  Consolidated  Traction  Company *       3,930,084.51 


210  ENGINEERING  VALUATION 

Division  "D" 
Track 

1.  The  principal  parts  of  track  construction  are  as  follows : 
(a)  Rails  and  fastenings. 

(6)  Ties. 

(c)  Foundations. 

(d)  Special  work. 

(e)  Paving. 

2.  Old  track  rehabilitated  with  new  standard  track  construction,  the 
cost  of  new  work  shall  be  di\'ided  between  Renewals  and  Capital,  as 
prescribed  in  the  ordinances. 

3.  Replacement  of  one  fourth  mile  continuous  distance  of  single 
track,  or  a  stretch  of  track  between  two  special  work  laj^outs  shall  be 
considered  as  a  unit  representing  a  principal  part  for  straight  or  curved 
track  outside  of  special  work. 

4.  In  case  of  a  renewal  of  rails  and  fastenings  (standard  construc- 
tion), all  other  track  work  occasioned  thereby  shall  be  considered  as  a 
part  of  the  charge  to  Renewals,  but  there  shall  be  no  charge  to  Capital 
unless  the  total  cost  of  the  renewal  work  shall  exceed  the  total  cost  of 
an  equal  length  of  standard  track  construction  complete,  and  then 
only  after  special  consideration. 

5.  Replacement  of  one  fourth  mile  continuous  distance  of  paving  8 
feet  wide,  of  the  full  width  of  the  pavement  in  the  right  of  way  between 
any  two  special  work  layouts,  shall  be  considered  as  a  unit  representing 
a  principal  part  for  the  renewal  of  paving. 

6.  Special  Work.  A  straight  standard  single-track  crossing,  either 
electric  or  steam  railroad,  or  its  equivalent,  shall  be  considered  a  prin- 
cipal part  for  special  work  renewals,  except  in  the  replacement  of  lay- 
outs containing  curves,  in  which  cases  a  decision  as  to  the  proper  charge 
to  Renewals  shall  be  made  at  the  time  request  for  work  order  is  sub- 
mitted to  the  Board. 

7.  In  order  to  simplify  accounting  and  economize  work,  the  follow- 
ing computations  shall  be  made  to  determine  the  cost  of  rehabilitated 
track  work  and  special  work  for  Renewal  purposes  and  to  establish  a 
proper  basis  for  charge  to  Renewal  Account : 

(a)  The  T.  V.  C.  value  of  track  and  paving  to  be  set  aside  and  con- 
sidered separately. 

(b)  An  estimate  to  be  made  fixing  a  unit  cost  on  new  special  work 
for  each  type,  this  estimate  to  be  ajjplicd  to  the  various  individual 
layouts  of  new  special  work  of  each  of  the  railway  companies.  This 
estimate  to  include  a  percentage  for  overhead.  The  aggregate  cost 
thus  determined  of  all  pieces  of  special  work  in  track  to  be  deducted 
from  the  total  track  account,  as  shown  on  the  books  of  the  Board 
after  setting  aside  T.  V.  C.  values  as  above. 


DEPRECIATION  211 

(c)  The  remainder  to  be  considered  as  the  aggregate  cost  of  straight 
or  curved  tracks  rchabiUtatcd  to  date,  not  included  in  .si)ecial  work. 

{d)  A  computation  should  then  be  made  estimating  the  cost  of  each 
of  the  different  tj'pes  of  rehabilitated  straiglit  track  construction  (in- 
cluding curved  track  not  in  special  work),  and  the  cost  of  each  tjT^e  so 
determined  shall  be  multiplied  by  the  number  of  miles  of  each  type  of 
track,  respectivel3^ 

(e)  The  aggregate  so  found  will  then  be  compared  with  the  total 
charges  against  track  account,  excluding  special  work  and  T.  V.  C. 
values  as  above,  but  including  paving  outside  of  right-of-way,  track 
elevation  expense  and  all  other  expenses  incidental  to  track  construc- 
tion, including  overhead  expense. 

(/)  The  difference  between  the  aggregate  of  the  estimates  and  the 
amount  shown  on  the  books  of  the  Board  (excluding  special  work  and 
certain  T.  V.  C.  values  as  above)  is  to  be  distributed  pro  rata  over  the 
various  miles  of  track  of  cUfferent  track  construction,  and  the  unit  costs 
thus  determined  will  represent  the  cost  per  mile  of  track  for  each  type, 
for  the  purpose  of  estabhshing  a  basis  for  charges  to  Renewal  Account. 

(g)  Estimates  for  paving  inside  right-of-way  to  be  calculated  upon 
the  same  general  plan  and  carried  separately,  so  that  a  unit  cost  for 
the  different  tji^es  of  paving  may  be  available  in  cases  where  the  pav- 
ing is  renewed  without  any  renewal  of  track  being  made. 

(h)  The  totals  of  T.  V.  C.  values  as  above,  rehabihtated  special  work 
and  track  values  and  pa^dng  values  should  equal  the  total  track  and 
paving  accounts  on  the  books  of  the  Board. 
These  computations  shall  be  made  separately  for  each  company. 

Division   "E" 

Electrical  Transmission  and  Distribution 

1.  The  principal  parts  of  the  electrical  transmission  and  distribu- 
tion system  are  as  follows : 

(a)  Poles  and  fittings. 
(6)  Trolley  (wire). 

(c)  Span  wire  and  fittings. 

(d)  Special  work  overhead. 

(e)  Overhead  feeder. 

(/)  Underground  feeder. 

(g)  Cross  bonds  and  negative  auxiliary  return  cable. 

(h)  Conduits,  manholes  and  vaults. 

(i)    Submarine  cables. 

(j)  Joint  bonds  and  auxiliary  cable  at  special  work. 

(/;)  Dispatching  system. 

2.  The  replacement  of  one  quarter  mile  continuous  distance  of  pole 
line,  either  side  pole  or  center  pole  construction,  shall  be  considered  as  a 


212  ENGINEERING   VALUATION 

unit  representing  a  principal  part  for  a  polo  line,  including  all  other 
necessary  work  occasioned  thereby. 

The  ordinary  replacement  of  cross  arms  and  pole  fittings  from  time 
to  time  shall  be  charged  to  Maintenance. 

3.  The  replacement  of  trolley  wire  on  one  mile  continuous  distance 
of  single  track  or  one  half  mile  of  double  track  shall  be  considered  as  a 
unit  representing  a  principal  part  for  the  renewal  of  trolley  wire ;  any- 
thing less  to  be  charged  to  Maintenance. 

4.  The  replacement  of  span  wires  on  one  mile  continuous  distance  of 
single  track,  or  one  half  mile  of  double  track,  shall  be  considered  as  a 
unit  representing  a  principal  part  for  the  renewal  of  span  wire,  including 
all  other  necessary  work  occasioned  thereby. 

5.  Special  Work  Overhead.  Replacement  of  a  complete  layout  of 
special  work  overhead,  in  case  the  cost  is  S200.00  or  more,  shall  be  con- 
sidered as  a  unit  representing  a  principal  part  for  the  renewal  of  special- 
work  overhead  (which  includes  trough  work  and  bridge  work),  and  all 
necessary  work  occasioned  thereby. 

6.  The  replacement  of  one  mile  continuous  distance  of  overhead 
feeder  shall  be  considered  as  a  unit  representing  a  principal  part  for 
the  renewal  of  overhead  feeder,  including  all  other  necessary  work 
occasioned  thereby. 

Where  overhead  feeder  is  taken  down  and  placed  in  stock  and  subse- 
quently used  on  outlying  hues,  the  job  from  which  it  is  claimed  shall 
be  credited  at  the  scrap  value  of  the  material  taken  down,  and  the  work 
on  which  it  is  subsequently  used  shall  be  charged  at  the  same  value. 

7.  The  replacement  of  one  quarter  mile  continuous  distance  of  under- 
ground feeder  shall  be  considered  as  a  unit  representing  a  principal 
part  for  the  renewal  of  underground  feeder,  including  all  other  neces- 
sary work  occasioned  thereb}'. 

Substitution  of  underground  for  overhead  feeder  not  to  come  under 
the  rule  relating  to  renewals  in  kind ;  the  excess  cost  of  the  work  of 
such  substitution  and  all  other  necessary  work  occasioned  thereby, 
over  the  original  cost  of  the  work  replaced,  shall  be  considered  a  proper 
charge  to  Capital  Account. 

8.  Replacement  of  one  quarter  mile,  or  the  distance  between  two 
track  special  work  layouts  for  auxiliary  negative  return  cable  and 
cross  bonds  shall  be  considered  as  a  unit  representing  a  principal  part 
for  the  renewal  of  auxiliarj^  negative  return  cable  and  cross  bonds 
including  all  other  necessary  work  occasioned  thereby. 

9.  The  replacement  of  special  work  bonding  or  auxiliary  cable  will 
follow  the  ruling  of  the  Board  in  each  specific  case  in  accordance  with 
paragraph  6  for  track  work. 

10.  The  renewal  of  a  conduit  line  is  considered  a  very  remote  possi- 
bility, and  such  replacements  as  are  occasioned  by  conduits  breaking 
or  excavations  at  street  intersections  or  at  intervals  under  tracks, 


DEPRECIATION  213 

made  by  the  city  or  other  pubHc  utiUties,  shall  be  charged  to  Main- 
tenance. In  case  for  some  reason  it  should  be  necessary  to  close  u})  a 
manhole  and  vault  and  build  another  one  at  a  difYercnt  location,  the 
cost  shall  be  charged  to  Maintenance. 

11.  The  replacement  of  the  length  of  submarine  cable  between  the 
manholes  on  each  land  side  shall  be  considered  as  a  unit  representing  a 
principal  part  for  the  renewal  of  submarine  cable,  including  all  other 
necessary  work  occasioned  theT•eb^^ 

12.  A  telephone  or  signal  system  outside  of  buildings  and  used  for 
dispatcliing  or  operating  cars  shall  be  considered  a  principal  part  for 
renewal.  The  replacement  of  the  system  as  a  whole  would  be  a  proper 
charge  to  Renewals,  but  the  replacement  of  individual  parts,  such  as 
instruments,  signal  or  comiecting  wires  and  general  repairs  shall  be 
charged  to  Maintenance. 

13.  The  same  general  plan  shall  be  observed  in  valuing  Electrical 
Transmission  and  Distribution  property  for  the  purpose  of  determin- 
ing the  proper  basis  for  charge  to  Renewal  Account  as  is  prescribed  in 
connection  with  the  valuation  of  track  for  the  same  purpose. 

Division  "K" 
Cars 

1.  The  principal  parts  of  cars  are  as  follows : 
(a)  Body  and  its  component  parts. 

(6)  Electrical  equipment  and  its  component  parts. 

(c)  Air-brake  equipment  and  its  component  parts. 

(d)  Trucks  and  their  component  parts. 

(e)  Miscellaneous  equipment. 

2.  In  case  any  one  of  these  principal  parts  becomes  obsolete  or  worn 
out  in  service  and  is  replaced,  rebuilt  or  reproduced,  the  cost  of  such 
replacement,  rebuilding  or  reproduction  shall  be  charged  to  Renewals. 

3.  Car  Bodies.  In  case  a  car  body  is  replaced  in  kind,  and  a  portion 
of  the  equipment  replaced  by  new  equipment  and  another  portion  of 
the  equipment  overhauled  and  used  again,  the  entire  cost  of  the  work 
shall  be  charged  to  Renewals. 

4.  Electrical  Equipment.  Same  as  car  bodies.  The  winding  of  an 
armature  or  the  replacement  of  any  part  of  the  electrical  equii^ment  in 
individual  cases  shall  be  charged  to  Maintenance,  but,  for  example, 
in  cases  where  the  controllers  on  a  group  of  cars  are  replaced  by  im- 
proved controllers,  for  reasons  of  economy  or  otherwise,  the  cost  would 
be  a  proper  charge  to  Renewals. 

5.  Air-brake  Equipment.     Same  as  car  bodies. 

6.  Trucks.  Same  as  car  bodies.  Replacement  of  wheels  shall  be 
charged  to  Maintenance. 


214  ENGINEERING   VALUATION 

7.  ^Miscellaneous  equipment,  such  as  headlights,  fenders,  guards, 
etc.,  ordinaiy  replacement  in  individual  cases  shall  be  charged  to 
Maintenance.  In  cases,  however,  where,  for  example,  new  head- 
hghts  are  placed  upon  a  group  of  cars,  or  upon  the  cars  equipping  an 
entire  hue  or  division,  or  the  cars  ruiming  out  of  a  particular  car  house, 
the  expense  shall  be  charged  to  Renewals.  In  case  seats  are  replaced 
on  a  single  car,  the  expense  shall  be  charged  to  Maintenance ;  but  if 
such  changes  are  made  on  a  group  of  cars  or  on  cars  equipping  an  entire 
line  or  running  out  of  a  particular  car  house,  the  expense  shall  be  charged 
to  Renewals. 

8.  Ordinary  repairs,  or  general  overhauling,  or  repainting,  shall  be 
charged  to  Maintenance. 

9.  Where  a  car  is  demolished  or  damaged  in  whole  or  in  part  by  a 
collision  or  other  accident,  the  cost  of  repairing  the  damage  or  replac- 
ing the  car  shall  be  charged  to  Maintenance,  excepting  that  when  a  car 
is  destroyed  by  fire,  the  provisions  of  the  ordinances  governing  insur- 
ance shall  be  apphed. 

10.  The  same  general  plan  shall  be  observed  in  valuing  cars  for  the 
purpose  of  determining  the  proper  basis  for  charge  to  Renewal  Account 
as  is  prescribed  in  connection  with  the  valuation  of  track  for  the  same 
purpose. 

Division   "G" 

Buildings 

1.   The  principal  parts  of  buildings  are  as  follows: 
(a)  Foundations. 
(6)  Walls. 

(c)  Coping. 

(d)  Roof. 

(e)  Cut  stone  or  terra  cotta  trim. 

(/)  MiU  work  —  sash,  doors  and  windows,  wainscoting,  etc. 

(g)  Carpentry. 

(h)  Glazing. 

(i)  Iron  shutters. 

(j)  Steel  rolling  doors. 

(k)  Floors  —  wood,  concrete,  tile,  composition,  brick. 

(l)  Plumbing,  sewerage  and  water  supply. 

(m)  Structural  steel  and  iron. 

(n)  Sheet  metal  work  —  skylights,  flashing  and  down  spouting. 

(o)  Heating  plant  and  accessories. 

(p)  Lighting  system. 

(q)  Telephone  system  —  interior. 

(r)  Chimnej's  or  stacks. 

(s)  Miscellaneous  equipment  — 


DEPRECIATION  215 

(1)  Lockers. 

(2)  Racks. 

(3)  Bins. 

(4)  Tables. 

(5)  Benches,  etc. 

(t)  Painting  and  decorating. 

(u)  Sidewalks,  driveways  and  fences. 

2.  The  buildings  now  being  used  by  the  companies  are  of  such  a 
character  of  construction  that,  with  adequate  and  timely  repairs, 
ordinary  wear  and  tear  would  not  necessitate  the  complete  renewal  of 
any  one  portion  of  a  building,  with  such  exceptions  as  are  hereinafter 
noted,  until  time  had  brought  about  a  complete  disintegration  of  the 
entire  structure.  There  may  be  occasions  when,  for  reasons  of  expan- 
sion, for  the  purpose  of  concentrating  facilities  or  for  some  other  extraor- 
dinary purpose,  it  would  be  necessary  to  destroy  and  replace  a  build- 
ing, either  in  whole  or  in  part,  with  a  larger  building,  or  with  a  different 
character  of  building,  in  which  event  the  rules  of  renewals  would  apply 
as  laid  down  in  the  ordinances. 

In  the  case  of  buildings  destroyed  by  fire  and  subsequently  rebuilt, 
the  question  of  accounting  is  covered  by  the  sections  of  the  ordinances 
governing  insurance. 

3.  The  foundations  are  as  near  as  may  be  possible  imper\dous  to 
ordinary  wear  and  tear,  and  should  not  require  replacement  under 
ordinary  conditions  during  the  life  of  the  building. 

4.  The  pointing  of  walls,  cementing  of  cracks  in  coping,  patching  of 
floors,  replacement  of  broken  lights  and  skylights,  new  flashing,  new 
down-spouts,  painting,  plastering,  calcimining  and  decorating  are  all 
in  the  nature  of  Repairs  and  Maintenance  and  should  be  so  charged. 

In  cases  where  walls  and  smoke  stacks  crack,  or  chimneys  are  blown 
down  or  destroyed,  the  repairs  shall  be  charged  to  Maintenance. 

5.  Defects  and  individual  replacements  in  lighting  systems,  plumb- 
ing, sewerage  and  water  supply  system  are  taken  care  of  as  they  develop, 
and  unless  some  improvement  calls  for  an  entire  change  in  the  method 
of  the  lighting,  sewerage,  plumbing  or  water  supply,  there  would  be  no 
occasion  for  a  charge  to  Renewals. 

6.  Miscellaneous  equipment,  as  enumerated  above,  is  seldom  replaced 
in  whole,  and,  as  a  rule,  with  ordinary  repairs,  should  last  througliout 
the  life  of  the  building.  In  a  case,  however,  where  a  set  of  wooden 
racks,  lockers  or  bins  is  replaced  with  metal  construction,  it  would  be 
proper  to  apply  the  rule  for  Renewals  as  prescribed  in  the  ordinances. 

Exceptions 

7.  Fire  Walls.  In  case  of  a  complete  renewal  of  any  one  or  more 
fire  walls  in  or  about  the  buildings,  the  expense  would  be  a  proper 
charge  to  Renewals. 


216  EXGIXEERIXG  VALUATION 

8.  Roofs,  Old  Style,  Wood  Foundation,  Felt,  Tar  and  Gravel  Covering. 
In  case  of  an  entire  replacement  of  the  felt,  tar  and  gravel  covering,  or 
of  the  entire  roof,  either  in  kind  or  with  a  roof  of  different  construction, 
the  cost  would  be  a  proper  charge  to  Renewals,  except  in  case  the  new 
roof  was  of  a  better  type  and  cost  more  than  the  old  roof ;  then  a  proper 
division  of  the  charge  should  be  made  as  between  Renewals  and  Capital. 

9.  Concrete  Roofs  not  covered.  It  is  probable  that  these  roofs  will 
remain  in  good  condition  for  as  long  a  time  as  the  first  tar  and  gravel 
roof  covering  would  last,  the  same  as  though  they  were  covered.  When 
they  become  cracked  or  leaky,  a  covering  should  be  placed  on  the 
concrete,  which  covering  would  be  a  proper  charge  to  Capital  Account. 

10.  Book  Tile  and  Concrete  Slab  Roofs,  loith  Tar  Felt  Covering.  Tile  or 
Slate  Roof.  The  replacement  of  either  roofs  or  roof  coverings  (weather 
proofing),  complete,  is  a  proper  charge  to  Renewals. 

11.  The  recoating  of  a  tar  and  gravel  roof  is  a  proper  charge  to 
Maintenance. 

Division  "I" 

Power  Plant  Machinery  and  Equipment 

1.  The  principal  parts  of  power  plapt  machinery  and  equipment  are 
as  follows : 

(a)  Machinery  foundations. 

(6)  Engines. 

(c)   Generators. 

{d)  Economizers. 

(e)   Traveling  cranes. 

(/)    Switchboard. 

(g)    Wiring. 

(h)    Piping  and  covering. 

(i)     Condensing  equipment 

(j)   Heaters  and  purifiers. 

(k)    Boilers. 

(l)     Pumps. 

(m)  Grates  and  stokers. 

(n)   Coal  and  ash  handling  apparatus. 

(o)    Coal  and  ash  storage  bunkers. 

(p)   Breeching. 

(g)    Miscellaneous  equipment. 

Substation  Machinery  and  Equipment 

2.  The  principal  parts  of  substation  machinery  and  equipment  are 
as  follows : 

(a)  Machinery  foundations. 
(6)  Rotary  converters. 


DEPRECIATION  217 

(c)  Transformers. 

(d)  Reactances. 

(e)  Oil  switches. 

(/)  High  tension  bus  and  structure. 

(g)  Switchboard. 

(h)  Traveling  cranes. 

(i)  Wiring,  A.  C.  and  D.  C. 

(j)  Air-blast  apparatus. 

{k)  Storage  battery. 

Shop  Machinery  and  Tools 

3.  The  principal  parts  of  .shop  machinery  and  tools  arc  as  follows : 
(a)  All  classes  of  shop  tools  and  machinery. 

4.  The  replacement  of  any  one  of  the  foregoing  items  in  paragraphs  1 
2  and  3,  complete,  would  constitute  a  proper  charge  to  Renewal  Ac- 
count, or,  in  case  the  replacement  was  an  improvement  over  the  item 
replaced,  the  excess  cost,  if  any,  would  be  a  proper  charge  to  Capital. 

In  instances  where  a  machine  has  received  constant  repairs  over  a 
period  of  time,  the  cost  of  such  repairs  being  charged  to  Maintenance, 
and  eventually  some  portion  of  the  machine  required  complete  renewal, 
the  cost  of  which  might  represent  a  large  sum  of  money,  such  an  ex- 
pense would  not  be  in  the  nature  of  ordinary  repairs  or  maintenance, 
but  should  be  considered  as  extraordinary  maintenance  and  upon  con- 
sideration by  the  Board  could  be  construed  by  it  as  properlj^  chargeable 
to  Renewal  Account ;  as  illustrations  —  the  replacement,  complete,  of 
tubes  in  a  water  tube  boiler ;  the  reconstruction,  complete,  of  brick 
settings  under  a  battery  of  boilers;  the  complete  rearrangement  of 
the  piping  system ;  the  rewinding  of  a  generator ;  the  replacement  of 
plates  or  cells  in  a  storage  battery. 

5.  Machine  and  Tool  Equipment.  The  first  installation  of  machine 
and  tool  equipment,  such  as  cutting  tools,  dies  and  jigs  or  other  appur- 
tenances and  attachments,  should  be  charged  in  the  same  manner  as 
the  tool  or  machine  itself,  either  to  Renewals  or  to  Capital,  but  subse- 
quent replacements  of  such  appurtenances  or  attachments  are  properh^ 
chargeable  to  Repairs. 

Replacement  of  hand  tools  is  properly  chargeable  to  Maintenance. 

6.  Furniture  and  Fixtures:  Office;  Power  Plant;  Substation;  Shops; 
Car  Stations.  Any  additional  items  over  and  above  existing  furniture 
or  equipment  will  be  a  proper  charge  to  Capital  in  case  the  cost  is 
S200.00  or  more.  Any  replacements  of  existing  furniture  or  equipment 
would  be  a  proper  charge  to  Renewals  in  case  the  cost  was  $200.00  or 
more.  All  replacements  or  new  purchases  costing  less  than  S200.00 
would  be  properly  chargeable  to  Maintenance. 


218  ENGIXEERIXG  VALUATION 

Division  "P" 

Tunnels 

1.  Tunnels  and  Subways  under  Viaducts.  The  tunnels  under  the 
Chicago  River  have  been  built  with  the  idea  that,  with  projK^r  main- 
tenance under  normal  conditions,  they  would  last  for  an  indefinite 
period  of  time.  If,  by  reason  of  accident  or  because  of  some  unfore- 
seen structural  weakness,  it  should  become  necessary  to  rebuild  the 
tunnel  in  whole  or  in  part,  the  disposition  of  the  cost  would  be  the 
subject  of  special  consideration. 

2.  The  renewal  of  tracks  and  electrical  transmission  system  in  the 
tunnels  is  covered  by  general  rules  relating  thereto. 

3.  The  replacement  of  the  hghting  system,  complete,  would  be  a 
proper  charge  to  Renewals,  but  the  replacement  of  lamps,  globes, 
individual  parts  and  general  repairs  shall  be  charged  to  ^Maintenance. 

4.  The  replacement  of  a  drainage  system,  complete,  shall  be  charged 
to  Renewals. 

5.  The  replacement  of  a  pump  shall  be  charged  to  Renewals. 

6.  The  replacement  of  a  wooden  subway  under  a  viaduct  by  a  cement 
subway  shall  be  charged  to  Renewals,  and  the  excess  cost  over  the  co.st 
of  the  wooden  subway,  if  there  be  an  excess,  shall  be  charged  to  Capital. 

Bridges  and  Viaducts 

As  the  companies  at  the  present  time  do  not  own  and  have  no  equity 
in  the  bridges  and  viaducts  traversed  by  their  tracks,  the  question  of 
renewals  is  confined  to  the  tracks  and  transmission  system.  These  are 
covered  by  the  general  rules  relating  to  each. 


CHAPTER  IX 

AMORTIZATION 

Amortization  may  be  described  as  the  depreciation  of  capital, 
or,  according  to  Webster,  "The  extinction  of  a  debt,  usually  by 
means  of  a  sinking  fund." 

When  a  sinking  fund  is  provided  for  the  taking  up  of  bonds  at 
maturity,  such  bonds  may  be  said  to  be  amortized. 

A  property  which  is  operating  under  a  franchise  which  has  no 
chance  of  renewal  should  amortize  any  and  all  investment  there- 
under, and  rates  must  be  charged  for  the  output  which  will  not 
only  show  a  profit  upon  the  investment,  but  will  return  the  invest- 
ment itself  at  the  expiration  of  the  franchise. 

When  a  public  utility  property  is  being  operated  under  per- 
petual franchise,  of  course  it  is  unnecessary  to  amortize  the  in- 
vestment on  this  account,  but  all  development  expenses  should  be 
amortized  at  a  rate  which,  while  extinguishing  them  before  the 
expiration  of  the  life  of  the  bonds,  will  not  seriously  interfere 
with  the  returns  on  the  property.  When  bonds  have  been  issued 
for  development  expenses,  the  rate  of  amortization  will  naturally 
be  one  which  will  cancel  the  bonds  at  their  maturity.  Where 
development  has  been  carried  on  by  cash  capital  or  from  earnings, 
a  rate  of  amortization  which  will  cancel  the  cost  at  any  convenient 
time  that  may  be  set  for  the  future  will  do.  Development  ex- 
penses are  best  amortized  by  using  the  surplus  earnings  over  and 
above  a  fair  rate  of  income  on  all  the  capital  (cash)  invested, 
and  are  fully  described  in  the  chapter  on  values,  page  6. 

When  factories  are  built  upon  leased  ground,  they  are  usually 
subject  to  a  renewal  of  the  lease  for  a  specified  term,  or  are  turned 
over  to  the  owner  of  the  land  at  the  expiration  of  the  lease.  In 
such  a  case  it  is,  of  course,  necessary  to  charge  a  rate  of  depre- 
ciation that  will  return  the  entire  cost  of  the  building  in  order  to 
recoup  the  owners  for  the  capital  invested. 

"If  a  sinking  fund  lie  added,  the  item  of  interest  upon  invested  capi- 
tal included  above  would  be  omitted,  of  course,  after  the  amortization 

219 


220  ENGIXEERIXG  VALUATION 

of  the  debt  of  construction  by  the  sinking  fuutl  If  the  annual  contri- 
bution to  tiie  sinking  fund  be  large,  the  construction  debt  will  be 
quickly  paid,  but  the  i)rcsent  burden  will  be  heavy  upon  the  consumer ; 
if  it  is  small,  the  period  will  be  lengthened  and  the  burden  decreased. 
Views  differ  upon  this  question,  which  is,  after  all,  one  of  sound  pubUc 
poUcy.  The  occasional  needs  or  burdens  growing  out  of  war,  fire, 
earthquake,  flood,  or  other  disaster,  which  have  befallen  cities  from  time 
to  time,  dictate,  or  at  least  indicate,  the  wisdom  of  letting  each  genera- 
tion bear  its  own  burdens  and  of  making  regular  contribution  to  a 
sinking  fund,  which  will  wipe  out  the  construction  debt  within  a  rea- 
sonable period  of  time,  such  as  twenty  or  forty  j'ears."  (Metcalfe, 
Waterworks  Valuation,  etc.,  Am.  Soc.  C.E.,  Vol.  LXIV,  1909,  p.  35.) 

Amortizing  the  Investment.  —  In  making  contracts  for  fran- 
chises between  municipalities  and  public  utility  corporations,  one 
method  that  suggests  itself  is,  for  the  municipality  to  so  word  the 
franchise  that  after,  say,  five  years,  the  company  will  be  obliged 
to  charge  itself  a  certain  percentage  on  its  investment  —  not 
necessarily  capital  —  in  order  to  retire  this  investment,  less 
the  junk  or  salvage  value  of  the  plant,  at  the  end  of  the  fran- 
chise term. 

As  any  such  charge  would  necessarily  have  to  come  from  earn- 
ings, it  would  become  a  charge  against  income,  and,  as  a  fixed 
rate  of  income  is  now  being  advocated  by  many  municipalities 
for  the  public  utilities,  and  in  many  cases  being  fixed  by  the 
courts,  it  would  be  a  point  for  discussion  whether  a  short  term 
franchise  requiring  a  large  charge  for  amortization  be  given,  or  a 
comparatively  long  term  be  designated,  bearing  a  relatively  much 
lower  charge.  It  must  be  borne  in  mind  that  w^hen  the  short 
term  franchi.se  is  given,  the  charge  will  ahvays  remain  high  for 
every  time  it  is  repeated. 

For  instance,  compare  two  franchises,  one  for  tw^enty-five 
years  and  another  for  fifty  years.  Assume  an  investment  (actual) 
of  $1,000,000  when  the  corporation  starts  business,  and  that  for 
improvements  and  additions  this  investment  is  increased  from 
time  to  time;  say,  at  the  end  of  ten  years  $100,000  has  been  added, 
and  at  the  end  of  fifteen  years  another  addition  of  $200,000  be 
made,  and  at  the  end  of  twenty  years  the  investment  has  been 
increased  by  $50,000  more,  or  making  a  total  investment  at  the 
end  of  twenty  years  of  $1,350,000,  which  must,  of  course,  be  fully 
amortized,  owing  to  the  fact  that  the  franchise  expires  and  there 
is  no  assurance  that  it  will  be  renewed. 


AMORTIZATION 


221 


First  or  Twenly-five-rjear  Franchise,  No  Amortization 

$1,000,000  to  end  of  term,  20  years  @  2\  per  cent  = 

$100,000  to  end  of  term,  15  years  @  2^  per  cent  = 

$200,000  to  end  of  term,  10  years  @  2§  per  cent  = 

$50,000  to  end  of  term,    5  years  @  2\  per  cent  = 

Then,  from  20  years'  remaining  life  to  15  years'  re- 
maining life  the  franchise  charge  for  amortization 
will  be 

From  15  to  10  j'-ears'  life  the  charge  will  be     .     .     . 

From  10  to    5  years'  life  the  charge  will  be     .     .     . 

From    5  years'  hfe  to  the  end  of  the  term  will  be     . 


for  First  Five  Years 
$39,100  per  annum. 

$5,580  per  annum. 
$17,860  per  annum. 

$9,510  per  annum. 


$39,000  per  annum. 
$44,680  per  annum. 
$62,540  per  annum. 
$72,050  per  annum. 


21  per  cent  =  $11,480. 
2\  per  cent  =  $3,640. 
2i  per  cent  =  $1,140. 


Second  or  Fifty-year  Franchise,  No  Amortization  for  First  Five  Years 
$1,000,000  to  end  of  term,  45  years  @  2i  per  cent  =  $12,300. 
$100,000  to  end  of  term,  40  years 
$200,000  to  end  of  term,  35  years 
$50,000  to  end  of  term,  30  years 

Then,  from  45  years'  remaining  Ufe  to  40  years'  re- 
maining hfe  the  franchise  charge  for  amortization 

will  be $12,300  per  annum. 

From  40  to  35  years'  life  the  charge  will  be     .     .     .  $13,780  per  annum. 

From  35  to  30  years'  life  the  charge  will  be     .     .     .  $17,420  per  annum. 

From  30  years'  life  to  the  end  of  the  term  will  be     .  $18,560  per  annum. 

The  following  tabulation  will  show  the  comparison  of  the  two 
terms  of  franchise : 


Total  Investment 

25- Year  Franchise 

50-Year  Franchise 

$1,000,000      .     . 
$1,100,000      .     . 
$1,300,000      .     . 
$1,350,000      .     . 

Per  Annum 

20  to  15  years'  life  $39,000 
15  to  10  years'  life  $44,680 
10  to    5  years'  life  $62,540 
5  years'  life  to  end  $72,050 

Per  A  nn  u  m 

45  to  40  years'  life  $12,300 
40  to  35  years'  life  $13,780 
35  to  30  years'  life  $17,420 
30  to  end  of  life      $18,560 

The  small  addition  to  the  investment,  $50,000  at  the  end  of 
twenty  years,  is  advisedly  so  for  the  reason  that  no  company 
would  care  to  increase  the  investment  to  a  greater  extent  than 
necessary  during  the  last  five  years  of  the  life  of  the  franchise, 
owing  to  the  approaching  end  of  the  business.  Still,  in  case 
the  amortization  fund  were  actually  permitted  by  the  munici- 
pality, —  which,  under  the  conditions  named,  would  I)e  necessary-, 
—  the  investment  would  not  suffer,  no  matter  how  near  to 
the  end  of  the  term  the  addition  might  be  made. 


222 


EXGIXEERIXG  VALUATION 


Comparing  two  shorter  term  franchises  we  have  for : 

Twenty-year  Franchise,  No  Amortization  for  First  Five  Years 
$1,000,000  to  end  of  term,  15  years  @  2^  per  cent  =  $55,800  per  annum. 
$100,000  to  end  of  term,  10  years  @  2^  per  cent  =  $  8,930  per  annum. 
$200,000  to  end  of  term,    5  years  @  2|  per  cent  =  $38,040  per  annum. 

Forty-year  Franchise,  No  Amortization  Jar  First  Five  Years 

$1,000,000  to  end  of  terra,  35  years  @  2|  per  cent  =  $18,200  per  annum. 

$100,000  to  end  of  term,  30  years  @  2§  per  cent  =    $2,280  per  annum. 

$200,000  to  end  of  term,  25  years  @  2|  per  cent  =    $5,860  per  annum. 

$50,000  to  end  of  term,  20  years  @  2|  per  cent  =    $1,955  per  aimum. 

Comparison  of  Twenty-year  and  Forty-year  Franchise 


Total  Invest- 
ment 

20-Year  Franchise 

40-Year  Franchise 

$1,000,000.    . 
$1,100,000  .     . 
$1,300,000.    . 
$1,350,000  .    . 

Per  Annum 

15  to  10  years'  life    $55,800 
10  to    5  years'  life    $64,730 
5  years'  life  to  end  $102,770 

Per  Annum 

35  to  30  years'  life    $18,200 
30  to  25  years'  Ufe    $20,480 
25  to  20  years'  life    $26,340 
20  years'  life  to  end  $28,295 

One  may  ask  if  a  depreciation  fmid  established  to  renew  the 
plant  does  not  act  as  an  amortization  fund ;  it  does  as  far  as  actual 
physical  plant  is  concerned,  and  if  a  thoroughgoing  fund  for 
depreciation  should  be  established,  the  values  upon  which  it  is 
calculated  can  be  deducted  from  the  total  investment  before 
computing  the  amount  chargeable  to  amortization  of  the  capital. 
Especially  is  this  the  case  where  franchises,  or  any  other  intangible 
property,  are  admitted  as  having  a  material  value,  as  when 
stock  has  been  issued  for  a  franchise  and  its  value  ends  with  that 
of  the  franchise. 

There  is  another  way  to  regard  this  situation,  and  that  is,  instead 
of  charging  to  an  amortization  fund  the  amounts  due  it  yearl}^ 
the  same  amount  could  be,  and  usually  is,  paid  to  the  stockholders 
or  investors  annually  in  dividends,  thus  returning  the  capital  to 
the  investor  in  small  amounts,  and  at  the  wind-up  of  the  company 
at  the  expiration  of  the  franchise,  sell  the  property  remaining  at 
such  figure  as  it  may  bring,  and  return  this  amount  to  the  in- 
vestors as  a  final  dividend.  In  some  states  franchises  are  so 
worded  that  the  municipality  has  the  right  to  purchase  the  prop- 
erty of  a  pu})lic  utility  at  the  expiration  of  the  franchise.     It  must 


AMORTIZATION  223 

be  said,  though,  that  in  the  past  twenty  years  pu])h('  utihty  com- 
panies have  passed  through  so  many  changes,  including  mergers, 
consolidations,  reorganizations,  etc.,  that  franchises  have  had  to 
be  adjusted  to  meet  the  conditions,  and  in  few  cases  have  cap- 
italists been  called  upon  to  close  out  a  business  without  a  return 
of  this  capital. 

The  Public  Service  Commission  of  New  York  has  this  to  say  on 
amortization  accounts : 

"  Accrued  Amortization  of  Capital.  Credit  to  this  account,  such 
amounts  as  are  charged  from  time  to  time  to  'Operating  Expenses,' 
or  other  accounts  to  cover  depreciation  of  plant  and  equipment,  and 
other  amortization  of  capital.  When  such  capital  is  retired  from 
service,  the  original  money  cost  thereof  (estimated,  if  not  known,  and 
where  estimated,  that  fact,  and  the  facts  upon  which  the  estimates 
are  based,  shall  be  stated  in  the  entry),  less  salvage,  shall,  cxcejit  as 
provided  in  Account  G-lOO,  'Fixed  Capital,  December  31,  1908,'  be 
charged  to  this  account.  The  amount  originally  entered  or  contained  in 
the  charges  to  any  capital  account  in  respect  of  such  capital  so  going 
out  of  service  shall  be  credited  to  such  capital  account  and  any  necessary 
adjusting  entry  made  to  the  appropriate  sub-account  under  the  account 
'Corporate  Surplus  or  Deficit.'" 

"General  Amortization  —  Gas.  Charge  to  this  account  month  by 
month  the  amount  estimated  to  be  necessary  to  cover  such  wear  and 
tear  and  obsolescence  and  inadequacy  as  have  accrued  during  tlie  month 
in  the  tangible  gas  capital  of  the  corporation,  such  portion  of  the  life 
of  intangible  fixed  capital  as  has  expired  or  been  consumed  during  the 
month,  and  the  amount  estimated  to  be  necessary  to  provide  a  reserve 
to  cover  the  cost  of  property  destroyed  by  extraordinarj''  casuality, 
less  the  amount  charged  for  that  month  to  the  various  repair  accounts  in 
gas  operating  expenses.  The  amount  charged  (or  credited)  to  this 
account  shall  be  concurrently  credited  (or  charged)  to  the  reserve 
account  No.  374,  'Accrued  Amortization  of  Capital.'" 

"Note  A.  Until  otherwise  ordered,  the  'amount  estimated  to  be 
necessary  to  cover  such  wear  and  tear  and  obsolescence  and  inade- 
quacy as  have  accrued  during  any  month  shall  be  based  on  a  rule 
determined  by  the  accounting  corporation.  Such  rule  may  be  derived 
from  a  consideration  of  the  said  corporation's  history  and  experience 
during  the  preceding  five  years,  and  the  accrual  may  be  on  the  basis  of 
amount  of  gas  sold.  Amortization  of  intangible  capital  shall  likcwi.sc 
be  based  on  rule.  Whatever  may  be  its  basis,  such  rules  and  a  sworn 
statement  of  the  facts  and  expert  opinion,  and  estimates  upon  which  they 
are  based  shall  be  filed  with  the  Public  Service  Commi.ssion  on  or  before 
January  1,  1909  ;   each  amendment  of  any  such  rule  and  a  sworn  state- 


224  ENGINEERING  VALUATION 

ment  of  the  facts  and  expert  opinions  and  estimates  upon  which  amend- 
ment is  based  shall  he  filed  with  the  Public  Service  Conmiission  before 
it  is  used  b.y  the  accounting  corporation,  and  shall  show  the  date  when 
it  is  to  be  effective.  Such  rules  and  statements  shall  be  filed  upon  sheets 
nine  and  one  half  inches  by  twelve  inches,  and  shall  be  entitled  'Rule 
of  the  —  (here  naming  the  accounting  corporation)  —  concerning 
amortization  of  capital.'" 

"Xote  B.  When  any  capital  is  retired  from  service,  the  amount 
(estimated  if  not  known)  originally  charged  to  a  capital  account  in 
respect  thereof  shall  be  credited  to  such  capital  account,  and  (except  as 
provided  in  Account  No.  G-lOO,  '  Fixed  Capital,  December  31,  1908'), 
the  original  money  cost  of  such  capital,  less  salvage,  if  any,  shall  be 
charged  to  the  reserve  account,  'Accrued  Amortization  of  Capital/ 
any  necessary  adjusting  entry  being  made  in  the  proper  account  under 
'Corporate  Surplus  or  Deficit.'  When  capital  is  substantially  con- 
tinuous and  cannot  be  satisfactorily  individualized,  it  shall  be  kept 
in  efficient  operating  condition  through  repair,  and  the  renewals  and 
replacements  of  parts  thereof  shall  be  considered  repairs.  In  the  case 
of  buildings,  towers,  bridges,  trestles  and  other  separate  structures, 
capable  of  being  readily  individualized,  charges  to  this  account  must  be 
sufficient  to  provide  (in  respect  of  such  capital,  and  except  as  pro- 
\ided  in  Account  G-lOO,  'Fixed  Capital,  December  31,  1908'),  in  the 
account,  'Accrued  Amortization  of  Capital,'  by  the  time  such  structures 
go  out  of  service,  a  reserve  equal  to  the  original  money  cost  thereof, 
less  salvage,  to  which  account  such  original  cost,  less  salvage,  shall 
be  charged." 

"Amortization  of  Landed  Capital,  Page  50.  Charge  to  this  account 
at  the  close  of  any  fiscal  period  such  portion  of  the  original  money  cost 
(estimated  if  not  known)  of  landed  capital  as  is  necessary  to  cover 
the  proportion  of  the  life  thereof  expired  during  such  period." 

"Note  A.  The  amounts  charged  to  this  account  shall  be  concurrently 
credited  to  Account  No.  374,  'Accrued  Amortization  of  Capital.' 

"  Note  B.  When  any  landed  capital  expires  or  is  otherwise  retired 
from  service,  (as,  e.g.,  through  sale),  the  capital  account,  or  other  indi- 
cant account  (if  any),  originally  charged  therewith,  shall  be  credited  with 
the  amount  originally  charged,  the  account  'Accrued  Amortization  of 
Capital '  shall  be  debited  with  all  amounts  theretofore  credited  to  such 
account  in  respect  of  such  landed  capital  so  going  out  of  service,  the 
api)ropriate  account  shall  be  debited  with  the  proceeds  of  sale  (if  any), 
and  any  necessary  adjustments  shall  be  made  through  the  'Corporate 
Surplus  or  Deficit  account.'  " 

Amortization  of  Patents. 

Many  classes  of  business  are  based  upon  the  value  of  patent 
rights,  and  oftentimes  the  company  for  manufacturing  under  such 


AMORTIZATION  225 

patents  is  not  formed  until  after  the  expiration  of  a  consider- 
able portion  of  the  life  of  the  i)at(uit,  leaving  but  a  short  t(!rni  of 
years  upon  which  to  work.  As  the  expiration  of  each  year  reduces 
this  Hfe,  so  should  an  amortization  fund  be  provided  for  such  a 
patent  in  order  to  keep  the  investment  intact  at  the  end  of  its 
term.  Many  corporations  carry  the  value  of  their  patents  at  a 
nominal  sum,  thus  not  capitalizing  them  at  all. 

It  is  not  necessarily  the  case  that  a  company  whose  business  is 
based  upon  patents  has  to  retire  upon  the  expiration  of  its  rights, 
for,  in  many  cases,  the  business  has  been  so  well  established  that, 
even  with  strong  competition  in  the  field,  the  business  grows 
in  extent  from  its  own  momentum  and,  if  properly  cared  for,  may 
remain  quite  as  profitable  as  before  the  expiration  of  its  grants. 
Even  with  the  best  of  patent  rights,  the  quality  of  protection  given 
by  the  owners  and  the  quality  also  of  the  business  management 
have  much  to  do  with  the  success. 

The  following  extract  from  Treasury  Decisions  shows  how  the 
Government  looks  upon  the  Amortization  of  patents  on  account  of 
the  Special  Excise  Tax. 

"  46.   Receipts  from  sale  of  patent  rights  to  be  included  in  income. 

"  61.  Royalties  on  patent  rights  to  be  reported  as  income.  Allow- 
ance for  depreciation  of  patents  expiring  during  year,  however,  will 
be  allowed."     (Internal  Revenue  T.  D.  1742,  Dec.  15,  1911.) 


CHAPTER   X 

HANDLING   OF  DEPRECIATION  FUNDS 

There  are  several  ways  of  handling  the  depreciation  funds, 
among  which   are  the  following : 

(a)  Carrying  the  depreciation  fund  as  a  part  of  the  surplus 
earnings. 

(b)  Carrying  a  cash  fund  in  a  bank  or  trust  company,  which 
can  be  called  upon  at  any  time  to  pay  for  renewals. 

(c)  Setting  aside  a  part  of  the  profits  as  a  depreciation  fund 
which  may  be  used  in  the  business  for  extensions  instead  of  call- 
ing in  outside  capital. 

The  depreciation  of  a  property  is  chargeable  to  operating  ex- 
pense, and  after  a  determination  of  the  amount  should  be  so  charged 
each  month.  Whether  this  amount  shall  be  credited  to  a  surplus 
account,  or  be  deposited  as  a  cash  asset  in  a  bank  or  trust  comjiany, 
will  be  governed  by  local  circumstances.  If  the  pul)lic  has  any 
interest  in  the  charge,  it  is  probable  that  a  d(^])osit  of  the  fund  with 
a  bank  or  trust  company  will  he  the  best  policy,  even  though  it  is 
plain  to  be  seen  that  more  profit  can  be  made  by  retaining  the 
amount  in  the  business,  for  the  public  will  have  more  confidence 
in  the  corporation  when  it  sees  that  there  is  money  ready  for  all 
renewals. 

Another  way  somewhat  resembling  the  last  is  to  invest  the 
depreciation  surplus  in  outside  securities  instead  of  depositing  it 
in  a  bank.  This  is  done;  in  order  to  produce  additional  income, 
but  it  is  seldom  that  such  inv(!stment  can  ])e  made  to  produce  as 
much  as  could  be  ol^tained  from  the  use  of  the  same  amount  in 
the  business  itself. 

Another  way  that  has  been  suggested  is  to  set  aside  the  surplus 
either  in  a  bank,  or  some  other  institution,  then  when  it  becomes 
necessary  to  borrow  money  for  business  purposes  l)orrow  from 
this  fund  rather  than  from  an  outsider,  paying  the  fund  the  regular 
interest  rate.  This  would  leave  the  dei)reciation  account  empty 
as  far  as  having  any  funds  ready  to  make  renewals  was  concerned, 
but  it  should  be  easy  to  borrow  for  the  fund,  using  the  accumulated 

22G 


HANDLING   OF  DEPRECIATION  FUNDS  227 

interest  for  the  new  loan.  As  such  a  fund  is  a  surplus,  it  will  he 
obvious  that  no  charge  can  be  made  against  it  for  interest  or 
other  expense  in  the  rates,  but  should  it  be  used  for  extending 
the  business  and  result  in  increasing  the  income,  then,  in  case  of 
publicly  regulated  public  utilities,  the  rates  may  be  reduced,  for 
the  public  should  not  be  called  upon  to  pay  profits  upon  money 
which  it  has  itself  already  contributed. 

Quotations  below  show  how  some  states  treat  those  reserves,  and 
these  are  followed  by  a  discussion  of  the  question  by  Herbert 
Stockwell,  in  his  paper  at  the  convention  of  the  National  Associa- 
tion of  Chartered  Accountants. 

Railroad  Commission  of  the  State  of  Wisconsin 

'^Required  Reserves  —  Depreciation  Reserve.  To  this  account  shall 
be  credited  monthly,  or  as  they  are  made,  all  charges  to  the  depre- 
ciation account  of  the  individual  operating  systems  (hereinbefore 
described),  the  income  from  the  investment  of  any  money,  or  from 
any  security  belonging  to  the  depreciation  reserve  and  any  other 
appropriation  which  may  have  been  made  to  it. 

"When  through  wear  and  tear  in  service  casualty,  inadequacy,  super- 
session or  obsolescence,  any  building,  structure,  facility  or  unit  of 
equipment  originallj'-  charged  to  capital  is  no  longer  economically 
reparable,  and  in  order  to  keep  the  productive  capacity  of  the  plant  up 
to  its  original  or  equivalent  state  of  efficiency,  it  is  necessary  to  make  a 
complete  replacement  of  such  buildings,  structure  or  unit  of  equipment, 
the  money  cost  of  the  original  unit  replaced  and  charged  to  capital 
(estimated,  if  not  known,  and  if  estimated  the  basis  thereof  shall  be 
shown  in  the  record  entry),  shall  be  charged  to  the  depreciation  reserve 
and  the  excess  cost  of  the  substituted  unit  over  such  original  unit  shall 
be  charged  to  the  appropriate  capital  account. 

"When  any  building,  structure,  facility  or  unit  of  equipment  originally 
charged  to  capital  is  retired  from  service  and  not  replaced  by  any  other 
unit  of  similar  nature  or  equivalent  thereto,  the  original  money  cost 
thereof  (estimated  if  not  known,  and  if  estimated  the  basis  thereof 
shall  be  shown  in  the  record  entry),  shall  be  charged  to  capital  in  respect 
to  such  unit  so  being  retired  shall  be  credited  to  the  capital  account  to 
which  it  was  originally  charged,  and  any  adjustments  necessary  made 
through  the  surplns  accoimt. 

"The  salvage  or  scrap  value  of  any  unit  of  equipment  retired  from 
service  or  replaced  by  any  other  unit  will  be  credited  to  this  account. 

"An  analysis  of  the  charges  and  credits  to  this  reserve  will  be  called 
for  in  the  annual  report  to  the  Railroad  Commission.  This  analysis 
will  show  the  charges  and  credits  with  respect  to  each  operating  system. 


228  EXGIXEERIXG   VALUATION 

and  the  nature  of  the  charges  with  respect  to  the  class  of  tangible  capi- 
tal for  whom  the}'  are  made." 

^'Amortization  Reserve.  This  account  shall  be  raised  to  provide  for 
the  amortization  of  intangible  capital  in  service.  To  it  shall  be  credited 
monthl}',  or  as  they  are  made,  all  the  amounts  charged  from  time  to 
time  through  operating  expenses  to  the  account  'Amortization  Reserve 
Requirements,'  which  account  is  to  be  set  up  where  the  nature  of  the 
capital  occasions  the  setting  up  of  this  reserve.  Such  reserve  shall  also 
be  credited  with  all  accumulations  resulting  from  the  investment  of  any 
moneys  or  the  interest  or  dividends  from  anj'  securities  belonging  to  it. 

"An  analysis  of  the  charges  and  credits  to  this  reserve  will  be  called 
for  in  the  annual  report  to  the  Railroad  Commission. 

"Optional  Reserves  —  Maintenance  Reserves.  This  reserve  may 
be  raised  by  those  telephone  utilities  which  operate  equipment  the 
repairs  to  which  are  occasioned  only  at  remote  intervals  and  are  then 
so  considerable  in  amount  as  to  cause  wide  fluctuations  in  the  operating 
expenses  for  the  division  of  operation  or  the  group  of  expenses  of  which 
the  maintenance  account  in  question  is  a  part. 

"Depreciation.  Every  public  utility  shall  carry  a  proper  and  ade- 
quate depreciation  reserve  to  cover  the  full  replacement  of  all  tangible 
capital  in  service.  There  shall  be  opened  a  depreciation  account  for 
each  operating  sj'stem  of  the  utility  to  which  shall  be  charged  monthly, 
crediting  depreciation  reserve,  an  amount  equal  to  one  twelfth  of 
the  estimated  annual  depreciation  of  the  tangible  capital  in  service 
of  the  operating  system,  or  as  near  that  amount  as  the  finances  of  the 
property  will  permit.  Tangible  capital  comprises  all  land  and  its 
improvements  and  all  interest  in  land  the  term  of  cnjo^Tiient  of  which 
is  one  year  or  more  from  the  date  of  grant,  buildings  and  structures 
and  all  equipment  and  apparatus  used  and  useful  in  the  furnishing  of 
telephone  service  and  having  an  expectation  of  life  in  service  of  more 
than  one  year.  Hand  and  other  small  portable  tools,  because  of  their 
liability  to  loss  and  theft,  are  to  be  treated  as  part  of  the  operating  ex- 
penses of  the  year  in  which  they  were  purchased.  The  estimate  here 
required  shall  be  made  upon  a  rule  designed  to  effect  by  its  uniform 
application  during  the  life  of  the  tangible  capital  in  service  a  charge 
into  operating  expenses  of  the  total  original  cost  of  such  capital  less 
its  salvage  or  scrap  value  upon  retirement." 

The  State  Railway  Commission  of  the  state  of  Nebraska  issues 
a  circular  in  which  the  folloAving  is  given  regarding  depreciation 
reserve : 

"Charges  against  this  account  should  be  made  during  the  operating 
\'ear  when  money  is  paid  out  on  account  of  operating  equipment  dis- 
carded as  useless  and  replaced." 


HANDLING  OF  DEPRECIATION  FUNDS  229 

The  explanation  of  the  liabihty  account  called  Depreciation  Re- 
serve, is : 

"This  account  should  be  credited  with  the  total  amount  that  the 
reporting  company  carries  into  the  new  year  by  reason  of  the  asset 
account  not  being  reduced  to  the  present  true  value  as  of  July  1,  1909. 
It  is  preferable  that  the  asset  account  should  be  depreciated  in  the  open- 
ing trial  balance  rather  than  be  put  in  at  higher  values  than  the  condi- 
tion of  the  plant  justifies,  and  credit  taken  in  the  depreciation  account 
for  the  amount  the  board  of  directors  may  think  the  plant  should  be 
reduced  from  the  original  cost.  It  is  expected  that  by  July  1,  1910,  the 
commission  will  be  able  to  suggest  some  depreciation  percentages 
which  can  be  used  for  a  satisfactory  basis  for  taking  care  of  this  matter." 

Herbert  G.  Stockwell  says  in  his  paper  before  the  Denver  Con- 
vention of  the  National  Association  of  Chartered  Accountants  : 

Reserves  Invested 

"  Regarding  the  showing  of  reserve  investments  on  the  asset  side  of  a 
balance  sheet,  I  do  not  find  myself  in  harmony  with  those  accountants 
who  would  urge  upon  corporations  the  necessity  or  even  desirability 
of  investing  its  reserves  in  outside  securities.  I  am  not  now  discussing 
the  sinking  fund  investments,  properly  so  called.  No  argument  can  be 
directed  against  the  investment  of  annual  installments  made  under  the 
requirements  of  a  mortgage  contract.  But  a  sinking  fund  reserve  and 
its  investment  are  not  matters  or  accounts  coming  within  the  scope  of  this 
paper.  I  am  now  referring  to  the  investment  in  outside  securities  of 
the  amount  set  aside  out  of  the  profits  of  a  corporation  as  reserves 
for  depreciation,  renewal  and  replacements. 

"  I  see  no  reason  for  the  investment  of  such  amounts  in  anything  other 
than  the  assets  or  working  capital  of  the  plant.  It  is  a  matter  of  com- 
mon knowledge  that  the  net  income  from  safe  investments  is  lower 
than  the  amount  of  what  ought  to  be  earned  by  a  corporation  in  its  own 
business.  To  say  that  a  corporation  should  take  monej^  out  of  its 
business  and  invest  it  in  securities  producing  a  lower  rate  of  income  than 
is  earned  by  that  corporation  is,  to  my  mind,  a  mistaken  notion,  and 
carrying  the  reserve  idea  further  than  necessary. 

"  Some  argue  that  a  reserve  for  depreciation  becomes  a  liability  which 
must  be  met,  and  that  the  only  safe  way  to  insure  the  meeting  of  the 
liability  is  to  invest  the  amount  thereof  in  some  standard  security. 
Perhaps  this  would  be  true  if  there  was,  in  truth,  any  such  liability, 
but  where  does  the  liability  arise,  when  does  it  mature,  and  to  whom  is 
the  corporation  liable  for  its  reserves?  If  the  reserves  are  anj-thing 
other  than  a  portion  of  the  profits  of  the  corporation,  stamped  and  set 
out  on  accounts,  I  am  not  looking  at  the  matter  correctly. 


230  EXGIXEERIXG  VALUATION 

"To  charge  a,  stipulated  amount  to  the  operating  expenses  as  de- 
preciation does  not  cause  the  corporation  to  lose  any  monej',  nor  does 
it  create  a  liability  on  the  part  of  the  corporation  to  anyone  for  anything. 
So  far  as  the  effect  on  the  liabilities  is  concei'ncd  the  transfer  might 
just  as  well  be  from  'Surplus  Account'  to  an  account  called  'Surplus 
Account  No.  2,'  it  being  understood  that  the  No.  2  account  constitutes 
a  safeguard  against  an  overvaluation  of  the  plant  until  it  is  entirely 
wound  up.  The  splitting  up  of  the  amount  so  transferred  producing 
charges  to  various  operating  expense  accounts,  does  not  change  the 
character  of  the  credited  account,  provided,  of  course,  that  the  inten- 
tion is  the  same  in  both  cases. 

"By 'far  the  greater  portion  of  manufacturers  do  not  consider  the 
subject  at  all  seriously.  Others  have  in  their  minds  that  if  any  de- 
preciation charges  are  made  at  all,  the  amount  should  be  10  per  cent. 
You  hear  this  from  iron  and  steel,  wood  and  lumber  indiscriminatel}'. 
The  idea  of  10  per  cent  as  a  depreciation  charge  seems  to  have  taken 
hold  of  the  manufacturer's  mind  in  very  much  the  same  wa.y  as  the 
foundr\Tnan's  rule  that  10  per  cent  of  the  weight  of  pig  goes  up  the 
chimnej'. 

"Very  few  writers  attempt  to  give  figures  except  with  a  wide  range, 
and  the  reason  for  it  is  that  no  general  rate  of  depreciation  will  apply  to 
any  class  of  corporations.  The  subject  has  been  considered  more  or 
less  seriously  by  several  of  the  larger  associations  of  manufacturers, 
and  papers  have  been  read  and  discussed.  The  American  Paper  and 
Pulp  Association  hopes  to  take  the  matter  up  shortly  as  an  association 
matter.  In  the  meantime,  testimony  by  individual  members  of  the 
association  before  a  committee  of  House  of  Representatives  recentl}^ 
seems  to  show  that  they  believe  that  depreciation  ought  to  be  set  at 
not  less  than  5  per  cent  of  the  cost  of  buildings  and  machinery." 

W.  B.  Jackson  in  a  paper  on  "Depreciation  Reserves"  has  the 
following  to  say  regarding  the  capitalization  of  replacement  costs 
and  reserves. 

"  By  capitalizing  replacement  costs,  the  burden  of  carrying  these  costs 
is  thrown  upon  the  future  without  limit  of  time  in  cases  of  unlimited 
franchises,  when  this  burden  should  have  been  borne  by  the  past, 
except  during  the  period  in  which  a  company  is  still  in  process  of 
building  up  its  business  to  a  remunerative  one. 

"Most  i)laut  managers  have  not  yet  come  to  a  full  appreciation  of 
the  dire  straits  a  plant  must  come  to  sooner  or  later  if  the  depreciation 
appropriations  or  their  equiv3,lent  are  not  systematically  and  intelli- 
gently attended  to.  We  may  consider,  for  example,  a  property  having 
a  large  investment  in  pole  lines.  This  may  amount  to  as  much  as  10 
per  cent  of  the  value  of  the  plant.     For  the  first  ten  years  comparatively 


HANDLING  OF  DEPRECIATION   FUNDS  231 

few  replacements  of  poles  will  be  required,  but  during  the  next  two 
years  most  of  the  poles  may  have  to  be  replaced.  Thus  an  average 
amount  of  money  equal  to  almost  5  per  cent  of  the  plant  in\-estment 
may  need  to  be  expended  each  of  these  years  for  pole  replacements 
alone,  and  other  parts  of  the  plant  are  surely  and  irrevocably  coming 
to  the  same  condition. 

"The  tendency  of  to-day  is  to  make  sweej^ing  changes  in  plant  and 
methods,  to  permit  of  less  expensive  or  of  improved  service.  On  this 
account  many  excellent  plants  in  good  operating  condition  are  shut 
down  and  the  requisite  power  received  from  other  sources.  A  company 
camiot  well  charge  off  of  its  capital  account  the  value  of  such  plants 
which  may  be  comparatively  new  when  thcj'  are  put  out  of  commission. 
The  question  is,  what  should  be  done  regarding  the  capital  value  of 
such  plants  ?  Unless  it  is  necessary  to  retain  the  plants  in  reserve,  I 
believe  they  should  be  dismantled  and  the  capital  of  the  company  re- 
duced by  the  amount  received  from  the  sale  of  discarded  machinery  and 
other  property.  Then  the  difference  between  the  amount  received  from 
their  sale  and  their  actual  capital  value  to  the  company  may  still  be  con- 
tinued as  a  true  asset  of  the  company,  and  that  value  be  gradually 
charged  off  at  the  normal  depreciation  rate  of  the  plants  discarded,  the 
capital  of  the  company  being  reduced  each  year  by  actual  liquidation  of 
that  amount.  In  other  words,  the  situation  is  one  wherein  the  regu- 
lar depreciation  appropriation  is  made  on  account  of  the  property 
until  the  full  cost  of  the  discarded  property  is  returned  to  the  security 
holders." 

Opinions 

"The  cost  of  reproduction  is  not  always  a  fair  measure  of  the  present 
value  of  a  plant  which  has  been  in  use  for  many  years.  The  items 
composing  the  plant  depreciate  in  value  from  year  to  j'ear  in  a  varj^ing 
degree.  Some  pieces  of  property,  like  real  estate  for  instance,  depreciate 
not  at  all,  and  sometimes,  on  the  other  hand,  appreciate  in  value.  But 
the  reservoirs,  the  mains,  the  service  pipes,  structures  upon  real  estate, 
standpipes,  pumps,  boilers,  meters,  tools  and  appliances  of  every 
kind  begin  to  depreciate  with  more  or  less  rapidity  from  the  moment  of 
their  first  use.  It  is  not  easy  to  fix  at  any  given  time  the  amount  of  de- 
preciation of  a  plant  whose  component  parts  are  of  different  ages,  with 
different  expectations  of  life.  But  it  is  clear  tliat  some  substantial 
allowance  for  depreciation  ought  to  have  been  made  in  this  case." 
(Knoxville  v.  Kno.xville  Water  Co.  Decided  July  4,  1909,  29  Sup. 
Ct.  151.) 

"The  company's  original  case  was  based  upon  an  elaborate  analysis 
of  the  cost  of  construction.  To  arrive  at  the  present  value  of  the  plant 
large  deductions  were  made  on  account  of  the  depreciation.  This 
depreciation  was  divided  into  complete  depreciation  and  incomplete 


232  EXGIXEERIXG  ^'ALUATIOX 

depreciation.  The  comj)lete  depreciation  represented  that  part  of  the 
original  plant  which,  through  destruction  or  obsolescence,  had  actually 
perished  as  useful  property.  The  incomplete  depreciation  represented 
the  impairment  in  value  of  the  parts  of  the  plant  which  remained 
in  e.xistence  and  were  continued  in  use.  It  was  urgently  contended 
that,  in  fi.\ing  upon  the  value  of  the  plant  upon  wliich  the  company 
was  entitled  to  earn  a  reasonable  return,  the  amounts  of  complete 
and  incomplete  depreciation  should  be  added  to  the  present  value  of 
the  surviving  parts.  The  court  refused  to  approve  this  method,  and 
we  think  properly  refused."  (Knoxville  v.  Knox"\-ille  Water  Co., 
29  Sup.  Ct.  152.) 

The  Loxdox  County  Council  r.  Henry  Edwards 
(Surveyor  of  Taxes) 

"Mr.  Justice  Channell,  in  the  course  of  delivering  judgment,  said 
that  he  had  some  difficulty  in  knowing  what  to  do  with  the  case. 
There  was  no  question  of  law  in  the  case  at  all,  and  on  that  ground  the 
appeal  ought  to  be  dismissed ;  but  he  did  not  Uke  to  base  his  judgment 
solely  on  that  ground,  as  the  case  had  been  argued  and  was  of  some 
importance.  The  question  arose  as  to  the  deductions  to  be  made  on 
the  assessment  for  income  tax  for  the  j'ear  ending  1904  in  respect  of 
the  diminution  in  value  of  the  tramway  plant  during  the  year  of  assess- 
ment by  reason  of  wear  and  tear.  The  term  'depreciation,'  although 
not  strictly  accurate,  was  a  convenient  form  of  expression  for  the  phrase 
'diminution  in  value  by  reason  of  wear  and  tear.'  Under  the  statute 
deduction  was  allowed  for  that  diminution  in  value,  but  in  the  case 
of  this  tramway  undertaking,  both  when  it  was  managed  by  private 
companies  and  also  by  the  London  County  Council,  it  had  been  the 
practice,  instead  of  making  an  estimate  each  year  as  required  by  the 
Act  as  to  how  much  the  plant  had  diminished  in  value  by  reason  of  wear 
and  tear  during  that  year,  to  allow  to  the  owners  for  the  time  being  of  the 
undertaking  the  amount  which  they  had  actually  paid  for  repairs  and 
renewals  during  the  j'ear  in  question.  As  long  as  there  was  no  change 
in  the  management  of  the  undertaking  there  would  not  be  much  differ- 
ence between  the  two  ways  of  calculating  the  amount  of  deduction. 
It  would  in  the  long  run  come  to  the  same  thing.  But  the  difficulty  in 
using  the  practice  actually  adopted  arose  from  the  difficulty  in  ceasing 
to  use  it  at  any  particular  time.  There  was  no  security  that  the 
parties  would  agree  to  continue  the  practice.  But  apart  from  that 
difficulty  there  might  be,  as  in  the  present  case,  a  change  in  the  mode  of 
carrying  on  the  undertaking.  The  London  Count}'  Council  complained 
that  under  the  circumstances  the  practice  told  against  them.  People 
did  not  usually  do  all  their  repairs  in  one  j'ear,  but  did  them  from  time 
to  time ;   but  sometimes  it  happened  that  the  repairs  in  one  particular 


HANDLING   OF  DEPRECIATION  FUNDS  233 

year  amounted  to  very  much  more  than  in  otlicr  years,  and  if  the 
practice  stopped  just  before  one  of  these  unusually  heavy  years,  the 
amount  that  would  be  obtained  would  not  be  so  great  under  the  prac- 
tice as  under  the  estimate  required  by  the  statute.  But  that  difficulty 
ought  to  have  been  foreseen  when  the  practice  was  adopted.  There 
was  no  objection  to  the  practice,  which  was  in  point  of  fact  a  convenient 
manner  of  calculating  the  amount  of  depreciation.  It  was  the  mode  of 
calculation  adopted  in  the  case  of  the  'Caledonian  Railway  Compan}' 
V.  Banks.'  In  the  present  case  it  was  adopted  down  to  the  j'ear  of 
assessment.  In  that  year  there  was  change  in  the  character  of  the 
undertaking  as  worked  by  the  London  County  Council.  They  ceased 
to  work  it  as  a  horse  tramway  and  decided  to  work  it  ])y  electric  power. 
That  necessitated  a  change  in  the  plant.  Cars  had  to  be  replaced, 
although  they  were  not  worn  out,  and  practicallj^  the  rails  of  all  the  lines 
which  were  to  be  worked  by  electric  j^ower  were  replaced.  This  was 
put  down  in  the  books  as  capital  expenditure.  This  change  gave  rise 
to  the  present  difficulty  in  assessing  the  allowance  to  be  made  for 
depreciation.  The  London  County  Council  might  have  objected  to  the 
usual  practice  of  calculating  the  depreciation  when  before  the  Com- 
missioners, on  the  ground  that  it  was  not  applicable  under  the  altered 
circumstances.  If  they  had  done  so  the  surveyor  of  taxes  could  not 
have  objected  to  the  estimate  being  made  under  the  statute.  But  they 
thought  they  would  be  better  off  in  continuing  the  practice.  The 
result  was  that  no  evidence  was  given  before  the  Commissioners  as  to 
the  actual  depreciation  by  reason  of  wear  and  tear  during  the  particular 
year.  The  parties  thought  that  the  old  practice  was  to  be  applied, 
but  in  his  Lordship's  opinion  that  practice  was  not  applicable.  The 
practice  was  to  allow  the  amounts  actually  expended  for  repairs  and 
removals.  But  in  the  year  in  question  no  sum  at  all  was  spent  on  re- 
newing or  repairing  the  plant.  What  was  done  was  that  as  regards  the 
tramways  which  were  altered  so  as  to  be  worked  by  electric  power  noth- 
ing was  spent  for  renewals,  inasmuch  as  a  different  thing  was  substituted 
for  the  former  tramlines ;  therefore,  if  the  old  practice  was  applied 
strictly,  the  London  County  Council  would  not  get  anything.  What 
in  fact  had  been  done  was  to  give  the  London  County  Council  the 
amount  which  they  would  have  spent  on  the  renewals  of  the  old 
system  of  horse  tramways.  If  the  old  system  had  continued  to 
have  been  used,  and  as  five  miles  of  rails  were  worn  out,  these 
would  have  had  to  have  been  renewed,  and  an  expenditure  for  that 
purpose  would  have  had  to  have  been  incurred  if  the  works  had 
continued  to  have  been  used  as  formerly.  His  Lordship  thought 
that  it  was  doubtful  whether  the  appellants  were  actually  entitletl 
to  that  sum.  It  was  clear  that  they  could  not  get  an  allowance  for 
what  they  had  failed  to  get  in  former  years,  nor  an  allowance  for  what 


234  EXGINEEKING  VALUATION 

they  would  fail  to  get  in  future  j'ears  owing  to  the  alteration ;  they  were 
confined  to  the  depreciation  in  the  year  of  assessment.  The  result 
was  that  the  London  County  Council  had  got,  in  his  opinion,  all  they 
could  have  got  if  the  old  practice  was  applied  strictly,  but  nevertheless 
they  were  dissatisfied.  They  now  said  that  the  estimation  under  the 
statute  ought  to  be  applied,  and  it  was  suggested  that  the  case  should 
be  sent  back  to  the  Commissioners  to  assess  the  amount  of  estimated 
depreciation  under  the  statute.  His  Lordship  did  not  think  he  could 
do  that  unless  the  Commissioners  had  gone  wrong  on  a  question  of 
law.  They  had  dealt  with  the  question  either  rightly,  or  if  wrongly, 
it  was  to  the  advantage  of  the  appellants,  and  therefore  the  appellants 
could  not  complain  of  the  decision  of  the  Commissioners.  Even  if  the 
case  was  sent  back  his  Lordship  did  not  think  it  would  be  of  much 
advantage  to  the  appellants.  It  was  a  question  of  fact  as  to  the  amount 
of  depreciation,  and  in  this  case  there  would  be  practically  no  diminution 
in  value  during  the  year  in  question,  because  the  relaid  lines  were  only 
used  during  one  month.  The  appeal  only  raised  a  question  of  fact  ; 
further,  the  London  County  Council  had  received  all  that  they  were 
entitled  to  under  the  practice  adopted  in  former  years ;  and  as  regards 
.  sending  the  case  back,  the  appellants  had  been  heard,  and  it  was  now 
impossible  to  go  into  the  figures.  For  all  these  reasons  the  appeal 
must  therefore  be  dismissed." 


CHAPTER  XI 

APPRECIATION 

Land  owned  by  Public  Utilities  Corporations  often,  it  may  be 
said  almost  invariably,  increases  in  value  to  a  very  considerable 
extent  during  the  life  of  the  plant.  Again,  the  prices  on  some 
portions  of  a  plant,  such  as  copper  wire,  cast-iron  pipe,  and  other 
commodities,  may  be  higher  at  the  time  of  api)raisal  than  when 
erected.  The  courts  have  decided  that  this  increment  belongs  to 
the  corporation  in  a  valuation,  the  same  as  depreciation  in  prices 
would  effect  a  lessening  of  value. 

Such  appreciation  should  be  carried  in  surplus  until  such  times 
as  the  property  changes  hands,  when  it  can  be  distributed  among 
the  stockholders.  One  can  imagine  a  case  of  increase  of  value 
such  that  set  rates  would  no  longer  pay  the  interest  or  dividends 
upon  the  value.  Factory  sites  oftentimes  so  increase  in  value  that 
it  is  good  economy  to  sell  the  site  and  move  to  a  new  location 
and  build  new  factories  with  money  received  for  the  old. 

Interstate  Commerce  Commission.     Commissioner  Lane. 

"Whatever  the  true  economic  or  legal  view  ma,y  be  as  to  the  right  of  a 
carrier  to  consider  the  increase  in  value  of  its  land  as  a  part  of  the  value 
upon  which  it  is  entitled  to  a  reasonable  return,  such  increase  in  value 
does  not  of  itself  establish  the  right  of  a  carrier  to  increase  rates  upon  a 
given  service.  Certainly  if  the  Supreme  Court  may  decline  to  lay  down 
the  absolute  rule  that  '  in  every  case  failure  to  produce  some  profit 
to  those  who  have  invested  their  money  in  the  building  of  a  road  is 
conclusive  that  the  tariff  is  unjust  and  unreasonable '  (Reagan  v. 
Farmers'  Loan  &  Trust  Co.,  154  U.  S.,  412),  it  is  a  conservative  state- 
ment of  the  law  to  hold  that  a  railroad  may  not  increase  the  rates  upon 
a  number  of  commodities  solely  because  its  real  estate  has  risen  in 
value."  Western  Advanced  Rate  Cong.  (20  I.  C.  C.  Rep.  344,  decided 
Feb.  22,  1911). 

235 


CHAPTER  XII 

FRANCHISE 

Definition : 

The  best  definition  of  franchise  that  the  writer  has  yet  found  is 
the  one  given  in  the  decision  of  the  Federal  Court  in  the  Consoli- 
dated Gas  Case  (157  Fed.  373). 

"The  franchise  is  but  a  part  of  the  power  or  privilege  of  sovereignty 
allotted  to  a  private  person  for  the  benefit  of  all,  and  only  incidentally 
given  for  private  emoluments." 

In  1893  the  Supreme  Court,  in  the  case  of  the  Monongahela 
Navigation  Co.  v.  United  States,  said  (13  Sup.  Ct.  632) : 

"The  franchise  is  a  vested  right.  The  state  has  power  to  grant  it. 
It  may  retake  it,  as  it  may  take  other  private  property,  for  public 
uses,  upon  the  payment  of  just  compensation.  A  like,  though  a 
superior,  power  exists  in  the  national  government.  It  may  take 
it  for  public  purposes,  and  take  it  even  against  the  will  of  the 
State;  but  it  can  no  more  take  the  franchise  which  the  State  has 
given  than  it  can  any  private  property  belonging  to  an  individual." 

Judge  Savage,  in  his  opinion  in  the  case  of  Kennebec  Water 
District,  in  giving  instructions  to  the  appraisers,  had  the  following 
to  say : 

"A  franchise  is  property,  and  it  has  value.  In  this  case  the  franchises 
have  value  in  themselves,  inasmuch  as  they  give  the  owner  the  privilege 
of  doing  what  is  called  a  'profitable  business.'  We  have  already 
shown  that  the  existence  of  such  franchises  may  also  enhance  the 
value  of  the  plant  by  which  they  are  exercised.  It  should  be  re- 
membered, however,  that  a  franchise  has  only  one  aiii)raLsab]c  value, 
and  care  should  be  taken  that  that  value  is  appraised  only  once." 
(Kennebec  Water  District  v.  City  of  Waterville,  54  Atl.  Rep.  19.) 

In  another  opinion  given  with  instructions  to  appraisers  as  to 
valuations  in  tlie  Brunswick  Case,  Judge  Savage  outlined  the 
especial  value  to  be  placed  on  a  franchi.se  such  as  that  owTied  in 

236 


FRAXCIIISE  237 

connection  with  the  other  property  of  the  Maine  Water  Co.,  as 
follows : 

"But,  again,  it  is  not  only  a  structure,  and  a  structure  being  used,  but 
it  is  a  structure  built,  maintained,  and  used  by  authority  expressly 
granted  to  the  company  by  the  State ;  that  is,  it  was  built  and  is  main- 
tained and  used  by  virtue  of  a  franchise  or  franchises.  The  structure 
is  law-fully  in  existence,  and  may  rightfully  continue  to  be  used  as  a 
going  concern  structure,  until  the  State  determines  otherwise.  This 
also  makes  the  structure  in  use  more  valuable.  It  is  the  difference 
between  a  structure  existing  by  sufferance  and  one  maintained  by 
right.  The  franchise,  however,  is  a  limited  one.  It  is  not  perpetual. 
It  may  be  recalled  by  the  State.  It  is  not  exclusive.  Other  and  com- 
peting franchises  may  be  granted.  It  is  not  absolute.  The  right 
may  be  limited  or  qualified  by  express  enactment.  One  franchise  is 
limited  in  the  nature  of  things,  and  that  is  the  franchise  to  charge  tolls 
or  rates  for  water  furnished.  It  cannot  charge  arbitrary  rates  beyond 
the  power  of  revision.  It  may  not,  as  we  have  seen,  under  some  cir- 
cumstances charge  rates  even  fairly  remunerative  upon  the  investment. 
It  can  only  charge  reasonable  rates  in  any  event  A  franchise  may 
exist  entirely  independent  of  the  structure.  There  maj^  be  franchises 
when  there  is  no  structure.  This  water  company  may  have  franchises 
within  this  district  which  are  not  connected  with  the  use  of  the  structure 
which  the  district  has  taken.  Of  that  we  have  no  knowledge.  But  so 
far  as  the  structure  is  maintained  and  used  by  virtue  of  a  franchise, 
that  fact  may  add  to  the  value  of  the  structure.  One  would  be  likely 
to  pay  more  for  it  as  a  structure  if  it  could  be  rightfull}^  used  than  he 
would  if  it  could  not.  What  is  it,  then,  that  the  district  is  taking,  and 
for  which  the  company  is  entitled  to  just  compensation?  It  is  a 
structure  in  actual  use,  and  with  a  right  on  the  part  of  its  owner  to  so 
use  it,  and  to  charge  reasonable  rates  to  customers  for  services  ren- 
dered." (Brunswick  and  Topham  Water  District  v.  Maine  Water 
Co.,  59  Atl.  Rep.  539.) 

According  to  the  most  modern  treatment  of  Public  Service 
Commissions,  a  franchise  is  a  privilege  given,  by  the  community 
to  a  private  person  —  or  corporation  —  for  use  of  the  public  ])roj)- 
erty  for  the  benefit  of  the  public,  and  only  incidentally  is  it  the 
intention  of  the  community  in  granting  such  a  right,  to  allow  tlie 
person  accepting  the  same  enough  profit  to  insure  his  ^villingness 
to  take  advantage  of  it  by  investing  in  plant  to  make  use  of  the 
grant. 

Perpetual  franchises  have  been  granted  in  many  states  in  the 
past,  notably  New  York  and  Pennsylvania,  and  in  some  other 


238  ENGINEERING  VALUATION 

states.  This  irrevocable  binding  of  future  generations  is  no  longer 
in  vogue,  and,  perhai)s  happil}^,  has  been  avoided  in  nearly  all  the 
newer  states  by  granting  term  franchises,  and  in  many  of  the 
states  these  terms  have  been  very  short. 

Some  of  the  objections  to  the  perpetual  franchise  are,  that  it  is 
almost  impossible  to  regulate  or  control  in  any  way  the  actions  of 
the  corporations  owning  the  same,  and  it  can  be  taken  away  from 
the  company  only  by  invoking  the  power  of  eminent  domain  and 
pa>ang  for  the  capitalized  value  of  the  prospective  net  earnings 
for  all  time,  in  addition  to  paying  for  the  value  of  the  physical 
property.  This  is  a  long,  tedious,  and  costly  process,  and  is  very 
discouraging  to  any  community. 

It  is  dangerous,  too,  from  a  lack  of  knowledge  of  the  future 
requirements  of  the  community;  for  who  can  say  what  changes 
will  be  necessary  for  any  city  in  the  years  to  come  ?  In  a  great 
many  places  a  perpetual  franchise  often  stands  as  "a  dog  in  the 
manger"  to  prevent  progress,  or  is  taken  advantage  of  by  pro- 
moters to  extort  money  by  reorganization  and  heavy  capitaliza- 
tion, thus  necessitating  high  rates,  or  making  poor  service,  and 
almost  always  produces  an  indifference  to  pul^lic  requirements. 

In  the  hands  of  a  progressive  comi^any,  however,  it  has  one 
advantage,  and  that  is,  the  fact  that  such  a  company  having  a 
perpetual  franchise  wall  often  build  far  ahead  of  the  present  require- 
ments, feeling  secure  in  its  ownership  and  trusting  to  the  future 
for  adequate  earnings  on  such  extensions. 

Some  of  the  main  disadvantages  of  the  short-term  franchises 
are,  first,  the  very  considerable  difficulty  in  financing  the  projects 
without  undue  liberality  as  to  bonuses  and  discounts  on  securities. 
Next,  a  grand  political  tearing  up  of  a  whole  community  at  short 
periods,  and  often  lasting  for  years  and  resulting  in  intensely  bitter 
feeling  between  the  Company  and  the  jDublic ;  and,  in  addition  to 
this,  not  only  leaving  floubts  in  the  minds  of  the  Company  officials 
as  to  the  advisability  of  making  much-needed  extensions,  but 
rendering  it  increasingly  difficult  to  induce  capital  to  come  in  for 
such  additions. 

If,  as  in  many  cases,  there  be  no  provision  in  the  franchise  for 
purchase  of  the  property  by  the  community  at  the  end  of  the 
term,  the  very  natural  tendency  is,  to  let  th(;  property  deteriorate 
as  it  wall,  and  spend  as  little  mom^y  on  repairs  as  possible  and 
maintain  any  kind  of  service.  In  a  properly  managed  company, 
it  would  also  be  necessary  to  set  aside  a  sinking  fund  for  amortiz- 


FRANCHISE  'j:V.) 

ins  all  tho  capital  that  could  not  l)e  recovered  by  selling  the 
jM-operty  for  juiik,  so  that  the  investor  should  Ret  iiis  investiiicut 
back  intact.  This  is  legal  and  correct,  and  any  c(Mn])any  o])erat- 
ing  under  a  short-term  franciiise,  or,  in  fact,  under  a  franchise  ui 
any  limited  term,  would  bo  criminally  foolish  to  take  the  chanctr 
that  the  franchise  would  necessarily  be  renewed  at  the  end  of  the 
term.  And  yet  that  is  what  is  being  done  by  tlu;  great  majority 
of  public  service  corporations  in  the  country.  Regarding  this 
amortization  fund  for  retirement  of  the  investment  at  the  expira- 
tion of  the  franchise,  some  calculations  are  given  in  a  previous 
chapter,  going  to  show  that  a  short-term  franchise  is  sure  to  be  more 
costly  to  the  community  than  one  of  a  considerable  number  of 
years,  by  reason  of  the  much  larger  charge  to  the  retirement 
fund. 

A  limited  term  franchise  is  almost  invariably  accompanied  by 
many  conditions  providing  for  the  performance  of  all  manner  of 
things  by  the  company,  such  as  paving  between  tracks  and  for  a 
foot  or  more  outside  of  rails,  keeping  pavement  in  repair,  water- 
ing streets,  removal  of  snow  and  ice  from  the  tracks ;  regulations 
as  to  rates,  transfers  and  service,  and  many  others,  many  or  all  of 
which  are  liable  to  be  entirely  neglected  as  the  end  of  the  franchise 
approaches.  It  is  simply  impossible  for  any  community  in  the 
United  States  to  formulate  any  conditions  for  the  future  which 
shall  hold  good  as  a  whole. 

The  only  advantage  of  a  limited-term  franchise  is,  that  it  gives 
a  community  the  chance  to  i3urchase  the  utility  at  the  end  of 
comparatively  short  periods,  or  to  impose  new  regulations  and 
requirements. 

The  indeterminate  franchise  is  now  imder  full  discussion,  and  has 
been  adopted  by  Wisconsin,  and  practically  so  by  the  state  of 
New  York,  and  has  been  in  use  in  Massachusetts  ever  since  public 
utilities  have  existed  in  that  Commonwealth. 

The  definition  of  the  indeterminate  franchise  is  briefly,  a  i^ermit 
issued  by  the  proper  authorities,  which  is  good  during  good  be- 
havior and  may  be  terminated  by  the  authorities  at  any  time  by 
paying  the  fair  value  of  the  property  exclusive  of  franchise.  In 
Massachusetts  the  permit  is  revocable  at  any  time,  but  no  ])rovi- 
sion  is  made  for  taking  over  the  property  at  any  value.  This  has 
resulted  in  the  permits  becoming  virtually  perpetual  franchises, 
as  none  has  ever  been  revoked. 

The  fundamental  principle  of  the  indeterminate  franchise  is 


240  EXGIXEERIXG  VALUATIOX 

that  it  gives  the  right  of  acquisition  by  the  community  of  all  the 
property  of  the  corporation  at  a  fair  value  to  be  determined  by 
competent  parties,  usually  a  Public  Service  Commission,  but 
subject  to  hearing  and  to  criticism.  Thus  a  community  may  rid 
itself  of  an  objectionable  corporation  by  purchasing  the  property, 
which  it  may  operate  itself,  sell,  or  lease  to  another  corporation 
under  more  favorable  control. 

So  far,  indeterminate  franchises  have  been  given  only  in  states 
where  a  Pubhc  Service  Commission  controls,  and  this  form  of 
franchise  lends  itself  easily  to  the  control  of  such  commissions, 
thus  doing  away  with  the  need  for  terms  and  conditions  that  were 
almost  invariably  the  accompaniment  of  the  old  forms.  A  com- 
mission can,  by  virtue  of  its  very  existence,  regulate  the  serArice 
and  rates  of  any  public  utility,  and,  what  is  further,  may  regulate 
the  granting  of  franchises  to  other  and  competing  corporations, 
thus  in  a  great  measure  protecting  investments. 

In  the  past,  franchises  of  public  utilities  have  been  capitalized  in 
a  great  majority  of  instances,  excepting  only  in  the  Commonwealth 
of  Massachusetts ;  and  quite  naturally  it  has  been  the  endeavor  to 
earn  dividends  on  such  capitalization.  From  recent  decisions  of 
the  Supreme  Court  of  the  United  States,  and  from  the  fact  that 
practically  all  the  laws  creating  Public  Service  Commissions  in- 
clude clauses  forbidding  the  capitalization  of  franchises,  it  would 
seem  as  if  this  would  cease  for  the  future,  even  in  those  states 
having  no  commissions  with  powers. 

In  Oregon,  franchises  are  to  be  treated  in  a  somewhat  different 
manner  than  they  are  elsewhere  if  the  Single  Tax  laws  proposed 
for  that  Commonwealth  are  carried.  Where  in  other  states  the 
authorities  are  endeavoring  to  convince  the  public  utilities  corpo- 
rations that  a  franchise  given  by  a  community  has  no  value  for 
capitalization,  in  Oregon  the  public  expects  to  carefully  determine 
the  value  and  the  increase  in  value  of  each  and  every  franchise, 
all  increase  being  taken  by  the  state  authorities  as  the  unearned 
increment  and  as  tax  on  the  land,  or  the  single  tax  on  the  whole 
property. 

Following  are  a  number  of  abstracts  from  court  decisions  and 
from  laws  creating  public  service  commissions  bearing  upon  the 
subject. 

"The  Gommission  shall  have  no  power  to  authorize  the  capitaliza- 
tion of  any  franchise  to  be  a  corporation  or  to  authorize  the  capitahza- 


FRANCHISE  241 

tion  of  any  franchise  or  the  right  to  own,  operai..-  ur  t-ujoy  any  irarKhiv- 
whatsoever  in  excess  of  the  amount  (exclusive  of  any  tax  or  annual 
charge)  actually  paid  to  the  State  or  to  a  political  subdivision  thereof 
as  the  consideration  for  the  grant  of  such  franchise  or  right.  .  .  ." 
(From  Section  55  Public  Service  Commission  Law  of  New  York,  Chapter 
•429.  Laws  1907,  as  amended ;  renewed  and  made  part  of  the  Con.-oli- 
dated  laws  by  Chapter  480  of  the  Laws  of  1910.) 

The  Wisconsin  Railroad  Commission,  in  the  Antigo  Water  and 
the  Marinette  Telephone  cases,  says  : 

"The  theon,-  of  the  Wisconsin  public  utilities  law  is  that  rates  shall 
be  reasonable  and  shall  not  be  greater  than  enough  to  >ield  a  fair  return 
on  the  investment.     In  determining  the  investment  as  a  preliminary 
process  to  the  fixing  of  rates,  the  commission  had  to  deal  with  Th<: 
of  large  'intangible"  franchise  values  as  well  as  'going  values,'  ; 
the  Antigo  water  case  and  the  Marinette  telephone  ease.     Re; 
the  former,  the  Commission  holds  that  if  the  municipality  requi.-r^  ... - 
pajTnent  of  money  or  its  equivalent,  or  there  was  necessary  legitimate 
pajTnent  made  for  the  franchise,  then  the  sum  which  may  be  reasonably 
said  to  have  been  paid  for  the  franchise  may  be  included  in  the  valuation, 
the  same  as  monej''  necessarily  invested  in  physical  property.     But  the 
Commission  refuses  to  consider  the  claims  of  some  exi)erts  and  corpora- 
tions that  franchises  for  which  no  money  was  i>aid  may  have  'in- 
tangible' values  which  should  be  considered  in  the  m^Vjng  of  rates." 

And  again  in  the  Consolidated  Gas  Case  : 

"  It  maybe  noted  in  passing  that  the  now  generally  accepted  view  is 
that  the  plant  value  upon  which  a  fair  return  must  be  earned  is  the 
present  cost  of  duplicating  the  existing  plant  (less  depreciation)  and 
not  its  actual  original  cost.  It  is  not  material,  therefore,  what  the 
original  outlay-  for  franchise  may  have  been,  but  it  is  important  to 
know  what  monev'S,  if  any,  would  not  have  to  be  expended  to  secure 
such  a  franchise.  Neither  are  past  losses  or  profits  conclusive  further 
than  as  they  throw  light  up>on  probable  future  earnings.'* 

"The  court  further  stated  that  it  does  not  appear  in  the  evidence  how 
the  valuation  of  the  franchisee  was  measured,  or  why  the  figures  selected 
were  chosen,  but  that  it  was  true  that,  when  complainant  was  organized 
in  ISS-l,  under  the  consolidation  statute,  which,  in  terms,  permitted  it  to 
acquire  the  property-  and  franchises  of  the  other  comp)anies.  it  issued 
stock  of  the  par  value  of  $7,781,000  representing  the  franchises  it  then 
acquired  and  nothing  else,  and  that  the  stock  was  held  by  purchasers 
who,  I  am  compelled  to  think,  had  a  right  to  rely  upon  legal  protection 
for  legally  issued  stock.  It  is  not,  of  course,  contended  there  was  special 
stock  issued  for  this  particular  item,  but  it  was  included  in  the  total 


242  EXGIXEERIXG   VALUATION 

sum  for  which  tho  rDii.solidatod  company  issued  its  stock,  and,  upon  its 
receipt,  the  stockholders  in  the  various  companies  surrendered  tiieir 
stock  in  those  companies.  The  result  was  that  the  amount  of  the 
stock  issued  by  the  consoli(hited  comi)any  was  increased  by  S7, 781,000, 
representing  a  value  of  franchises  which  was  agreed  upon  by  the  stock- 
holders in  the  companies,  and  which  had  never  cost  any  of  them  a 
single  penn}'. 

"It  cannot  be  disputed  that  francliiscs  of  this  nature  are  property 
and  cannot  be  taken  or  used  bj^  others  without  compensation.  Mouon- 
gahela  Navigation  Co.  v.  United  States,  14S  U.S.  312,  L.  ed.  463, 13  Sup. 
Ct.  Rep.  622;  People  v.  O'Brien,  111  N.  Y.  1,  2  L.  R.  A.  255,  7  Am.  St. 
Rep.  684,  18  N.  E.  692,  and  cases  cited.  The  important  question  is 
always  one  of  value."  (Willcox  v.  Consolidated  Gas  Co.,  29  Sup.  Ct.  196.) 

"But  there  is,  however,  no  method  of  valuing  franchises,  except  by  a 
consideration  of  earnings."     (Same,  p.  197.) 

*  ****** 

"We  are  not  prepared  to  hold  with  the  court  below  as  to  the  increased 
value  which  it  attributes  to  the  franchises.  It  is  not  only  too  much  a 
matter  of  pure  speculation,  but  we  think  it  is  also  opposed  to  the  principle 
upon  which  such  valuation  should  be  made.  This  corporation  is  one 
of  that  class  which  is  subject  to  regulation  by  the  legislature  in  the 
matter  of  rates,  provided  thej'-  are  not  made  so  low  as  to  be  confiscatory. 
The  franchises  granted  the  various  companies  and  held  by  complainant 
consisted  in  the  right  to  open  the  streets  of  the  city  and  lay  down  mains 
and  use  them  to  supply  gas,  subject  to  the  legislative  right  to  so  regulate 
the  price  for  the  gas  as  to  permit  not  more  than  a  fair  return  (regard 
being  had  to  the  risk  of  the  business)  upon  the  reasonable  value  of  the 
property  at  the  time  it  is  being  used  for  the  public."     (Same,  197.) 

"What  has  been  said  herein  regarding  the  value  of  the  franchises 
in  this  case  has  been  necessarily  founded  upon  its  own  peculiar  facts, 
and  the  decision  thereon  can  form  no  precedent  in  regard  to  the  valua- 
tion of  franchises  generalh^  where  the  facts  are  not  similar  to  those 
in  the  case  before  us.  We  simply  accept  the  sum  named  as  the  value 
under  the  circumstances."     (Same,  198.) 

"The  complainant  also  contends  that  the  state,  having  taxed  it  upon 
its  franchises,  cannot  be  heard  to  deny  their  existence  or  their  value  as 
taxed. 

"The  fact  that  the  state  has  taxed  the  companj^  upon  its  franchi.ses 
at  a  greater  value  than  is  awarded  them  here  is  not  material.  Tho.se 
taxes,  even  if  founded  upon  an  erroneous  valuation,  were  properly 
treated  by  the  compan}''  as  part  of  its  operating  expenses,  to  be  paid 
out  of  its  earnings  Ijcfore  the  net  amount  could  be  arrived  at  applicable 
to  dividends,  and,  if  such  latter  sums  were  not  sufficient  to  permit  the 
proper  return  on  the  property  used  by  the  company  for  the  public, 
then  the  rate  would  be  inadequate.     Tlie  future  assessment  of  the 


FRANCHISE  243 

value  of  the  franchises,  it  is  presuinctl,  will  l)o  much  lessened  if  it  is 
seen  that  the  great  profits  upon  which  that  value  was  based  arc  largely 
reduced  by  legislative  action.  In  that  way,  the  consumer  will  be 
benefited  by  paying  a  reduced  sum  (although  indirectly)  for  taxes." 
(Willcox  V.  Consolidated  Gas  Co.,  29  Sup.  Ct.  Rep.  199.) 

"The  right  to  place  gas  mains  in  the  streets  of  New  York  and  main- 
tain them  for  i^iivate  profit  is  in  and  of  itself  something  upon  or  from 
which  an  income  return  may  be  ju.stly  and  lawfully  demanded,  a  return 
different  and  separable  from  that  derived  from  all  the  company's 
tangible  property  or  any  part  thereof.  It  is  not  asserted  that  any 
right  such  as  above  described  was  ever  bought  by  complainant  from 
either  state  or  city,  or  that  for  such  right  any  valuable  consideration  was 
ever  paid  in  the  usual  legal  sense  of  the  words.  Indeed,  the  asserted 
rights  all  date  from  that  time  in  American  economics  when  those 
promoting  public  works  were  regarded  as  public  benefactors,  and  the 
right  to  serve  the  public  was  something  thought  to  be  sufficiently  paid 
for  by  the  act  of  service.  In  these  later  days,  however,  complainant, 
finding  itself  treated  rather  as  a  malefactor  than  a  benefactor,  brings 
this  action  to  ascertain,  inter  alia,  whether  the  latest  statutory  rate 
leaves  it  a  fair  return  not  only  upon  its  tangible  property,  but  upon  the 
right  to  use  that  property  in  the  gas  business,  which  right  is  com- 
monly called  a  franchise.  As  an  original  proposition  I  believe  this  claim 
unsound.  Return  can  be  expected  only  from  investment,  and  he  that 
invests  must  part  with  something  in  the  act  of  investing.  He  that  hath 
not  sown  shall  not  reap,  and  can  it  be  said  that  complainant  here,  or 
any  other  corporation  similarly  situated,  has  invested  its  franchise  in 
its  business  ?  It  did  not  invest  in  its  franchi.se  because  it  did  not  pay  for 
it,  it  did  not  invest  its  franchise  because  it  did  not  part  with  it  in  the 
same  way  that  it  parted  with  money  or  money's  worth  in  acquiring 
or  creating  mains  or  plants.  The  investment  of  property  was  made 
not  in  the  franchise,  but  under  the  franchise,  and  on  the  faith  thereof." 
(Willcox  V.  Consolidated  Gas  Co.,  157  Fed.  Rep.  873.) 

"A  corporation  maintaining  a  public  highway,  although  it  owns  the 
property  it  emploj^s  for  accomplishing  public  objects,  must  be  held  to 
have  accepted  its  rights,  privileges,  and  franchises  subject  to  the  condi- 
tion that  the  government  creating  it,  or  the  government  within  whose 
limits  it  conducts  its  business,  may,  by  legislation,  protect  the  people 
again.st  unreasonable  charges  for  the  services  rendered  by  it.  It  can- 
not be  assumed  that  any  railroad  corporation,  accepting  franchises, 
rights  and  privileges  at  the  hands  of  the  public,  ever  supposed  that  it 
accjuired,  or  that  it  was  intended  to  grant  to  it,  the  power  t(»  construct 
and  maintain  a  public  highway  sinii)ly  for  its  benefit,  without  regard 
to  tlie  rights  of  the  pul)lic.     Hut  it  is  cfiually  true  that  the  corporation 


244  ENGINEERING  VALUATION 

performing  such  public  services,  and  the  people  financially  interested 
in  its  business  and  affairs,  have  rights  that  may  not  be  invaded  by 
legislative  enactment  in  disregard  of  the  fundamental  guaranties  for 
the  protection  of  property.  The  corporation  may  not  be  required  to  use 
its  property  for  the  benefit  of  the  public  without  receiving  just  com- 
pensation for  the  services  rendered  by  it."  (Smith  v.  Ames,  18  Sup. 
Ct.  433.) 

Regarding  franchises,  Benezette  Williams  said  in  discussing  a 
paper  Ijy  J.  W.  Alvord  before  the  American  Waterworks  Associa- 
tion in  June,  1909 : 

"The  older  conception  of  what  are  now  known  as  public  service 
corporations,  and  public  utilities,  which  was  based  upon  the  theory 
that  a  company  operating  under  a  special  grant  from  some  legislative 
authority  was  its  own  master,  and  not  subject  to  rate  regulation  or 
control,  is  fast  giving  place  to  a  newer  and  sounder  one.  Franchises, 
or  grants  conferring  special  privileges,  were  and  still  are,  so  far  as 
they  extend  to  definite  matters,  considered  property  which  may  have 
value  or  not,  depending  upon  whether  the  business  authorized  is 
profitable  or  unprofitable. 

"The  modern  conception  is  that  its  sole  function  is  to  serve  the 
public,  and  that  it  is  entitled  to  a  revenue  sufficient  for  operation, 
maintenance,  renewals  and  an  adequate  return  on  the  capital  invested, 
which  carries  with  it  governmental  regulation  of  rates  and  control  as 
to  the  character  of  the  service  rendered,  the  franchise  under  which 
it  operates  being  indeterminate,  and  hence  not  property  in  the  older 
meaning  of  the  term. 

"If  the  modern  conception  had  even  partially  prevailed  a  genera- 
tion ago,  and  a  joint  responsibility  had  been  established  between  the 
public  and  private  agencies  that  brought  public  utilities  into  being, 
the  franchises  providing  that  at  the  expiration  of  the  contracts  the 
utilities  should  be  taken  over  by  the  public  authorities  at  a  price 
equal  to  the  actual  amount  of  the  investment  without  depreciation,  or 
that  the  franchise  should  be  renewed,  the  complications  now  experienced 
in  the  valuation  of  such  utilities  would  scarcely  have  arisen.  If  this 
had  been  done,  courts  would  not  have  rendered  decisions  insisting 
that  the  rates  charged  by  public  service  corporations  must  be  rea- 
sonable, but  giving  us  no  clew  as  to  how  the  reasonableness  of  rates 
can  be  determined." 

"What  is  the  value  of  a  franchise  to  perform  a  certain  service,  under 
which  no  money  is  invested  and  no  service  yet  performed?  What 
is  it  worth  apart  from  performance  und(!r  it? 

"Unless  it  can  be  seen  to  possess  inherent  value  entirely  apart  from 
the  earning  capacity  of  the  subsequent  investment  or  from  the  actual 


FRANCHISE  245 

earnings  resulting  from  such  investment,  the  value  asserted  or  claimed 
is  but  a  (lui)lication  of  that  derived  from  the  use  of  the  tangible  property 
when  so  invested. 

"The  concepts  of  the  nature  and  value  of  franchises  are  seen  dimly 
and  confusedly  because  of  the  failure  to  distinguish  between  produc- 
tive and  nonproductive  property.  Land,  money,  chattels  may  by 
industry  and  intelligence  be  made  productive  without  a  franchise ; 
but  no  excellence  in  these  desirable  qualities  can  ultimately  render 
a  franchise  productive  without  the  use  of  money,  chattels  and  land 
in  connection  therewith,  and  when  the  juncture  is  made  the  earning 
capacity  of  the  real  and  personal  property,  plus  the  franchise  and 
plus  intelligence  and  industry,  is  really  no  greater  than  it  would  be 
without  the  franchise,  for  the  franchise  has  added  no  {)roducing  power 
to  the  realty  or  personalty;  it  has  but  authorized  their  employment 
in  a  particular  way  and  protected  the  owners  while  so  employing 
them." 

As  an  indication  of  the  change  of  opinion  that  has  come  over  the 
court  in  the  past  few  years,  I  append  a  number  of  decisions  going 
to  show  that  in  the  past  franchise  value  was  often  recognized. 

In  the  case  of  Monongahela  Co.  v.  U.  S.,  March  27,  1893,  where 
Congress  had  provided  that,  in  the  taking  over  of  a  lock  and  dam 
belonging  to  the  company,  no  compensation  should  be  made  for 
the  franchise  of  the  corporation  giving  it  the  privilege  of  taking 
toll ;  the  Supreme  Court  of  the  United  States  held  that  compen- 
sation for  the  franchise  must  be  given;  Justice  Brewer,  in  stating 
the  opinion  of  the  court,  said : 

"We  are  not,  therefore,  concluded  by  the  declaration  in  the  Act  that 
the  franchise  to  collect  tolls  is  not  to  be  considered  in  estimating 
the  sum  to  be  paid  for  the  property.  ...  If  a  man's  house  must  be 
taken,  that  must  be  paid  for;  and,  if  the  property  is  held  and  im- 
proved under  a  franchise  from  the  state,  with  power  to  take  tolls,  that 
franchise  must  be  paid  for,  because  it  is  a  substantial  element  in  the 
value  of  the  property  taken.  So,  coming  to  the  case  before  us,  while 
the  power  of  Congress  to  take  this  property  is  unquestionable,  yet  the 
power  to  take  is  subject  to  the  constitutional  limitation  of  just  com- 
pensation. .  .  .  How  shall  just  compensation  for  this  lock  and  dam  be 
determined?  .  .  .  The  value  of  property,  generally  speaking,  is 
determined  by  its  productiveness,  the  profits  which  its  use  brings  to 
the  owners.  .  .  .  The  value,  therefore,  is  not  determined  by  the  mere 
cost  of  construction,  but  more  by  what  the  completed  structure  brings 
in  the  way  of  earnings  to  its  owner.  .  .  .  The  prices  which  may  be 
exacted  under  this  legislative  grant  of  authority  are  the  tolls,  and  these 


246  ENGINEERING   VALUATION 

tolls,  in  the  nature  of  the  case,  must  enter  into  and  largely  determine 
the  matter  of  value."  (Monongahela  Co.  i\  United  States,  148  U.  S. 
312.) 

A  later  case  in  the  Supreme  Court  of  the  United  States  shows 
how  valuable  a  public-service  franchise  may  come  to  be  in  com- 
parison with  the  tangible  property  by  means  of  which  it  is  used. 
In  this  case,  the  city  of  Brooklyn  took  the  plant,  property  and 
franchises  of  a  water-supply  company,  and  the  commissioners 
appointed  to  value  these  items  awarded  the  sum  of  $370,000 
for  the  tangible  property  of  the  company,  and  $200,000  for  its 
franchises  and  contracts.  The  basis  of  franchise  valuation  was 
stated  as  follows,  and  this  was  sustained: 

"To  recapitulate  what  lias  just  been  said,  we  have  valued  the  fran- 
chise upon  the  assumptions  (1)  that  at  present  the  water  company  alone 
has  the  right  publicly  to  purvey  water  in  the  Twenty-sixth  Ward ; 
(2)  that  the  exclusiveness  now  incident  to  its  right  may  at  any  time  be 
taken  from  it  bj'  the  Legislature,  or  by  local  authorities  acting  under 
legislation ;  but  (3)  that  neither  the  Legislature  nor  local  authorities 
would,  in  determining  whether  to  take  from  the  company  the  exclu- 
siveness of  its  right,  fail  to  have  such  due  regard  as  is  demanded  by 
ample  and  fair  public  policy,  to  the  past  investment,  risks  and  serv- 
ices of  the  company  and  to  the  reasonably  just  expectations  which 
those  who  have  invested  money  in  its  work  had  in  mind  when  so 
investing."  (Long  Island  Water  Supply  Co.  v.  Brooklyn,  IGG 
United  States  685.) 

"The  vice  of  it  consists  in  the  fact  that  it  substituted  one  of  the 
elements  of  damages  for  the  measure  of  damages  itself.  The  bridge 
structure,  the  stone,  iron,  and  wood,  was  but  a  portion  of  the  property 
owned  by  the  bridge  com]:)any,  and  taken  by  the  county.  There  were 
the  franchises  of  the  company,  including  the  right  to  take  toll,  and 
these  were  as  effectually  taken  as  was  the  bridge  itself.  Hence,  to 
measure  the  damages  by  the  mere  cost  of  building  the  bridge  would  be 
to  deprive  the  compan.y  of  any  compensation  for  the  construction  of 
its  franchises.  The  latter  can  no  more  be  taken  witliout  compen.sati()n 
than  can  its  tangible,  corporeal  property.  Their  value  necessarily 
depends  upon  their  productiveness.  If  they  yield  no  money  return 
over  expenditures,  they  would  possess  little  if  any  i^resent  value.  If, 
however,  they  yield  a  revenue  over  and  alcove  expens(>s,  they  possess 
a  present  value,  the  amount  of  which  depends  in  a  measure  upon  the 
excess  of  revenue.  Hence  it  is  manifest  that  the  income  from  the 
bridge  was  a  necessary  and  proper  subject  of  inquiry  before  the  jury. 
Tli(!  court  ])cnnitlcd  the  plainliCf  1o  ])rov(i  tlu-  r(!C('ii)ts  for,  say,  five 


FRANCHISE  247 

years  before  the  taking,  but  denied  the  defendant's  permission  to  extend 
the  inquiry  back  to  the  time  of  the  organization  of  the  company.  We 
perceive  no  error  in  this  ruHng.  ...  Its  value  at  the  time  of  the 
taking  is  the  rule.  .  .  .  Tlu;  county  might  perhaps  have  built  a  new 
bridge  at  another  sti'eet  for  half  the  money,  but  it  did  not  do  so ;  it 
elected  to  take  the  property  of  the  bridge  company,  and  the  inquiry 
under  such  circumstances  is  not  what  it  is  worth  to  the  party  taking, 
but  its  value  to  the  company  that  is  deprived  of  its  property."  (Mont- 
gomery County  V.  Schuylkill  Bridge  Co.,  110  Pa.  State  54-58.  20 
Atl.  Rep.  407.) 

FRANCHISE  TAX 

When,  as  in  New  York,  franchises  are  taxed  at  a  large  value 
computed  by  a  tax  commission,  it  would  seem  equitable  that  they 
should  also  return  dividends,  or  at  least  be  represented  by  some 
amount  in  the  capitalization.  In  New  York,  though,  it  is  as 
broad  as  it  is  long,  as  the  income  on  the  actual  investment  is 
practically  guaranteed,  the  public  naturally  has  to  stand  whatever 
charge  is  made  for  taxes  on  the  franchise  before  calculating  the 
guaranteed  dividend  and  the  company  might  as  well  be  allowed 
to  place  a  capital  value  on  the  privilege. 

Below  will  be  found  a  description  of  the  method  used  for  arriv- 
ing at  the  value  of  public  service  franchises  as  practiced  by  the 
Ford  Franchise  Commission. 

From  Decision  of  Court  of  Appeals  of  New  York  in 
Jamaica  Bay  Company  Case 

"Justice  Willard  Bartlett  has  done  what  the  corporation  counsel 
requested  the  court  to  do.  He  has  given  a  decision  to  serve  as  a 
general  guide  in  determining  the  amount  of  special  franchise  taxes. 

"On  behalf  of  the  State  and  the  city  it  was  argued  by  the  corpora- 
tion counsel  in  the  test  case  of  the  Jamaica  Bay  Company  that  the 
method  for  valuation  was  generally  to  find  the  net  earnings,  then  to 
value  tangible  property,  deduct  from  the  net  earnings  a  fair  return  on 
the  present  value  of  the  tangible  property,  and  by  this  process  of 
elimination,  determine  the  portion  of  the  earnings  derived  from  the 
franchise.  Then  to  capitalize  that  portion  of  the  earnings  on  the  basis 
of  the  sum  which  business  men  familiar  with  the  proposition  regarded 
as  a  fair  return.  The  princi})al  thus  found  thus  measures  the  value  of 
the  intangible  franchise  right,  and  to  this  sum  there  is  added,  under 
the  law,  the  value  of  the  tangible  property  in  the  streets." 


248  EXGIXEERIXG  VALUATION 

Based  on  the  Report  of  the  Referee  in  the  Case  of  New 
York  State  v.  Third  Avenue  Railway  Company 

The  Method  is  the  One  Commonly  Employed  by  the  Ford  Tax  Fran- 
chise Cojnmission  and  has  been  Approved  by  the  Supreme  Court 
of  the  United  States 

First  doterniino  the  gross  earnings  from  operation  for  the  year 
ending  at  the  date  for  which  it  is  wished  to  complete  the  books. 
Next,  from  these  gross  earnings  deduct  the  total  operating  ex- 
penses, leaving  the  gross  income  from  operation.  Deduct  from 
the  gross  income  for  operation  taxes  upon  the  property,  deprecia- 
tion for  the  whole  property,  and  a  dividend  of,  say,  5  or  6  per  cent 
such  as  the  company  may  be  entitled  to,  this  dividend  to  be  com- 
puted upon  the  physical  valuation  of  the  property. 

After  deducting  these  last-mentioned  amounts  from  the  gross 
income,  capitalize  the  balance  at  the  current  rate  of  interest  in  the 
locality,  usually  6  per  cent,  and  to  this  capitalization  add  the  value 
of  the  physical  plant  that  is  in  the  streets.  This  sum  then  be- 
comes the  value  of  the  special  franchise  under  which  the  public 
utility  is  operated. 

An  Example  of  the  Method  used  for  Determining  the  Franchise 
Value  for  Tax  by  the  Ford  Franchise  Tax  Commission  of 
New  York 

A  Street  Railway 

Gross  Earnings  (say) $5,000,000 

Operating  I-']xpenses 4,000,000 

Gross  Income 1,000,000 

Taxes $150,000 

Depreciation 200,000 

Dividend  on  value  of  property  as  for  appraisal, 

5  per  cent  on  $8,000,000 400,000  750,000 

Net  Income       $250,000 

Capitalized  at  5  per  cent 5,000,000 

Add  value  oi"  that  part  of  physical  propertv  in  the  streets  (say)  2,500,000 

Value  of  franchise  for  taxation $7,500,000 

Chicago  Method  of  Computing  Franchise  Value 

The  method  here  described  was  devised  by  the  Board  of  Super- 
vising Engine(Ts  for  valuing  the  unex])ired  franchises  of  the  several 
street  railway  systems  of  Chicago.     Each  of    these   companies 


FRANCHISE  249 

was  composed  of  a  number  of  lines,  nearly  all  having  franchises 
that  expired  at  different  dates. 

The  data  necessary  for  this  computation  are  as  follows : 

(a)  Name  of  street  covered  by  franchise. 

(6)  Limits  between  which  the  franchise  extends. 

(c)  Dates  the  franchise  expires  on  different  routes. 

{d)  Miles  of  single  track  on  the  street. 

(e)  Car  miles  operated  over  each  track,  computed  from  trip 
sheet  of  the  company. 

(/)  Gross  passenger  earnings  for  each  track  as  listed. 

{g)  Net  earnings  for  each  track  listed.  This  was  determined 
by  assuming  that  30  per  cent  of  the  gross  passenger  earnings 
would  be  net,  and  adding  to  this  the  ratio  of  other  net  earnings. 
That  is,  the  net  passenger  earnings  (as  above)  for  the  year  were 
added  to  the  net  earnings  from  other  sources  and  the  total  was 
then  divided  by  the  gross  passenger  earnings  for  the  year. 

{h)  The  value  per  mile  of  all  the  physical  property  actually 
on  the  street,  including  track  and  special  work,  bridges  and  trestles, 
overhead  constructions  ;  the  sum  of  all  plus  any  percentage  —  in  this 
case  10  per  cent  —  was  divided  by  the  total  single  track  milage. 

{i)  The  value  of  all  other  investment,  or  that  investment  not 
on  the  street,  calculated  per  car  mile  operated  for  the  year  ending 
the  date  of  the  appraisal ;  that  is,  the  sums  of  the  values  of  track 
in  car  houses  and  yards,  electric  power  distribution  system,  tele- 
phone, feeder,  cars,  power  plant,  fixed  tools  and  machinery,  build- 
ings, real  estate,  floating  tools  and  supplies ;  was  divided  by  the 
total  car  miles  operated,  giving  a  factor  for  apportioning  values 
of  property  not  on  the  street,  among  the  different  streets  listed. 

{j)  The  value  of  the  property  on  each  street  was  then  deter- 
mined by  multiplying  the  miles  of  single  track  by  the  value  per 
mile  =  d  X  h,  and  adding  to  this  the  value  of  general  property 
chargeable  to  the  street,  by  multiplying  the  car  miles  by  the  rate 
per  car  mile  =  e  X  i,  then  j  =  (d  X  h)  +  (e  X  i). 

ik)  Interest  at  5  per  cent  on  the  total  value  of  the  property 
as  shown  in  column  (j). 

(I)  Time  (in  years  and  days)  the  franchises  have  to  run  after 
the  date  of  appraisal. 

We  now  have  all  the  data  necessary  for  calculating  the  value 
of  the  franchise,  and  if  it  were  wanted  for  one  year  only,  the 
value  would  be  the  difference  between  the  net  earnings  as  shown 
in  {g)  and  the  interest  given  in  (k),  or  g  —  k  =  franchise  value. 


250  EXGIXEERIXG  VALUATION 

But  for  determining  the  value  as  of  the  dates  of  expiration  it  is 
necessary  to  compute  the  present  value  of  the  two  items  {g)  and 
{k)  for  the  time  shown  in  (J).  Again,  as  the  earnings  always 
increase  from  year  to  year  it  will  be  necessary  to  study  the  rate 
of  increase  in  the  particular  region  in  which  the  property  is 
located.  This  rate  of  increase  has  been  called  the  "Arnold  fac- 
tor" and  must  be  applied  to  the  amount  of  the  earnings  for  the 
year  ending  on  the  date  of  the  appraisal,  and  be  compounded 
year  by  year  to  the  end  of  the  term.  The  present  value  of  each 
year's  net  earnings  must  be  found  by  multiplying  the  amount  by 
the  present  value  of  one  dollar  for  the  term  remaining.  It  is  better, 
though,  to  compute  the  present  value  of  one  dollar  and  apply  to 
it  the  Arnold  factor  thus  making  one  factor  to  be  applied  to  the 
value  of  the  net  earnings  for  the  time  each  franchise  has  remain- 
ing. As  the  earnings  are  available  at  short  intervals  during  the 
year  the  average  date  of  the  middle  of  the  year  is  used. 

Next,  the  present  value  of  a  year's  interest  as  in  {k)  must  be 
found  l^y  multiplying  the  amount  by  the  present  value  of  one 
dollar  for  the  time  shown  in  (/).  Interest  is  taken  as  at  the  end 
of  the  year.  The  value  of  the  franchise,  then,  will  be  the  differ- 
ence between  the  present  value  of  the  net  earnings  and  the  present 
value  of  the  interest  as  calculated  above. 

The  method  used  by  Professor  H.  C.  Adams  for  determining 
the  value  of  the  unexpired  franchises  of  the  Detroit  United  Rail- 
ways is  best  shown  b}^  quoting  from  his  report  as  follows : 

"Commercially  speaking,  the  basis  of  franchise  value  is  the  revenue 
.  which  accrues  from  operation  in  excess  of  operating  expenses  and  of 
the  reasonable  return  upon  the  investment  in  the  physical  plant.  This 
remainder  is,  in  fact,  a  surplus  revenue  which,  in  case  of  a  street  rail- 
way operating  on  a  franchise,  is  protected  against  competition  by  the 
terms  of  tlie  ordinance  concerned  and  provided  the  amount  of  this 
permanent  excess  profit  can  be  determined  for  a  year,  the  value  of  the 
underlying  franchise  is  obtained  by  computing  its  present  value  for 
the  number  of  years  which  a  franchise  has  to  run." 

Regarding  the  increase  in  earnings  by  virtue  of  the  increase  in 
population,  he  has  the  following  to  say : 

"The  above  rule  does  not  consider  tlie  increased  value  of  the  unex- 
pired franchises  due  to  the  probable  increase  in  tli(^  population  of  the 
city  of  Detroit.  There  is,  of  course,  no  way  of  (H)nii)uliiig  this  value. 
It  is  purely  speculative." 


FRANCHISE  251 

The  method  used  hy  Professor  Adams  in  determining  tlie  vahie 
of  the  different  franchises  in  Detroit,  is  applicable  to  that  city 
and  to  such  others  as  may  have  the  same  complication  in  fran- 
chises; but  it  is  too  much  involved  to  describe  here,  although  it 
may  be  said  that  it  consists  mainly  in  awarding  to  each  franchise 
line  the  amount  of  net  earnings  as  determined  by  a  study  of  the 
car  mileage  and  the  passenger  mileage,  and  is  a  tedious  mathe- 
matical calculation  by  use  of  the  traffic  sheets  turned  in  by  the  car 
reporters. 

As  to  the  power  to  tax  franchises  or  in  fact  property  of  any  kind 
the  following,  from  an  opinion  of  Chief  Justice  Marshall,  seems  to 
go  far  toward  settling  the  matter.  In  the  case  of  McCulloch  v. 
Maryland,  reported  in  the  fourth  volume  of  Wheaton's  U.  S. 
records,  page  430,  the  Chief  Justice  said: 

''  That  the  power  to  tax  involves  the  power  to  destroy ;  that  the  power 
to  destroy  may  defeat  and  render  useless  the  power  to  create  .  .  .  are 
propositions  not  to  be  denied." 


CHAPTER  XIII 
CAPITALIZATION 

There  can  be  no  question  to-day  of  the  statement  that  the  capi- 
tahzation  of  a  public  service  corporation  must  represent  the  actual 
but  full  cost  of  the  property  as  it  exists,  and  no  more.  There  is 
no  room  for  discussion  of  the  fact  that  the  ph^-sical  property  must 
be  capitalized  at  what  it  has  cost  ready  for  operation ;  that  if 
money  has  been  paid  for  a  permit  or  franchise  that  must  also  be 
added  to  the  cost,  and  after  the  corj^oration  becomes  a  going  con- 
cern, it  is  perfectly  regular  and  legal  to  add  to  the  capital  the 
reasonable  cash  cost  of  obtaining  a  going  value. 

Where  the  public  utiUties  are  under  the  control  of  a  commis- 
sion, it  is  now  almost  compulsory  to  build  all  additions  to  plant 
with  new  capital,  and  not  with  surplus  earnings,  on  the  theory 
that  surplus  earnings  mean  unnecessaril}^  high  rates,  and  it  is  the 
rate  that  the  commission  is  bound  to  regulate  to  the  extent  that 
the  corporation  gets  for  its  reward  just  a  fair  interest  and  no 
more,  and  all  surplus  earnings  must  be  devoted  to  improving  the 
service  and  not  to  increasing  the  plant.  As  a  matter  of  fact,  the 
settling  of  a  rate  to  which  the  public  utilities  corporation  is  clearly 
entitled,  in  effect,  acts  somewhat  as  a  guarantee  by  the  community, 
and  in  fact  is  beginning  to  be  so  considered  by  the  authorities. 

It  is  practically  impossible  to  regulate  rates  so  closely  as  not  to 
make  some  surplus  without  producing  results  that  will  at  times 
amount  to  confiscation,  and  the  ordinance's  in  Chicago  make  use 
of  this  surplus  to  induce;  the  companies  to  make  extra  effort  for 
good  service,  by  dividing  it  with  the  corporations.  In  Boston 
agreement  has  been  made;  with  the  Gas  Com])any  that  the  price 
of  gas  and  rate  of  profit  shall  be  on  a  sliding  scale,  and  that  when 
the  company  reduces  the  rate  five  cents  per  thousand  feet,  it  may 
the  next  year  increase  its  dividend  rate  1  per  cent. 

In  the  decree  of  the  Supreme  Court  on  the  Consolidated  Gas 
Case,  the  following  regarding  the  setting  of  a  fair  rate  of  return 
was  given : 

"There  is  no  particular  rate  of  compensation  which  must,  in  all 
cases  and  in  all  parts  of  the  country,  be  regarded  as  sufficient  for  capi- 

252 


CAPITALIZATION  253 

tal  invested  in  business  enterprises.  Such  compensation  must  depend 
greatly  upon  circumstances  and  locality ;  among  other  things,  the 
amount  of  risk  in  the  business  is  a  most  important  factor,  as  well  as 
the  locality  where  the  business  is  conducted,  and  the  rate  expected 
and  usually  realized  there  upon  investments  of  a  somewhat  similar 
nature  with  regard  to  the  risk  attending  them.  There  may  be  other 
matters  which,  in  some  cases,  might  also  be  properly  taken  into  account 
in  determining  the  rate  which  an  investor  might  properly  expect  or 
hope  to  receive  and  which  he  would  be  entitled  to  without  legislative 
interference.  The  less  risk,  the  less  right  to  any  unusual  returns  upon 
the  investments.  One  who  invests  his  money  in  a  business  of  a  some- 
what hazardous  character  is  very  properly  held  to  have  the  right  to  a 
larger  return,  without  legislative  interference,  than  can  be  obtained 
from  an  investment  in  government  bonds  or  other  perfectly  safe  secur- 
ity. The  man  that  invested  in  gas  stock  in  1823  had  a  right  to  look 
for  and  obtain,  if  possible,  a  much  greater  rate  upon  his  investment 
than  he  who  invested  in  such  property  in  the  city  of  New  York  years 
after  the  risk  and  danger  involved  had  been  almost  entirely  elimi- 
nated. 

"In  an  investment  in  a  gas  company,  such  as  complainant's,  the  risk 
is  reduced  almost  to  a  minimum. 


The  court  below  regarded  it  as  the  most  favorably  situated  gas  busi- 
ness in  America,  and  added  that  all  gas  business  is  inherently  subject 
to  many  of  the  vicissitudes  of  manufacturing.  Under  the  circum- 
stances, the  court  held  that  a  rate  which  would  permit  a  return  of 
6  per  cent  would  be  enough  to  avoid  the  charge  of  confiscation,  and 
for  the  reason  that  a  return  of  such  an  amount  was  the  return  ordi- 
narily sought  and  obtained  on  investments  of  that  degree  of  safety  in 
the  city  of  New  York. 

"Taking  all  facts  into  consideration,  we  concur  with  the  court  below 
on  this  question,  and  think  complainant  is  entitled  to  6  per  cent  on 
the  fair  value  of  its  property  devoted  to  the  public  use."  (29  Sup. 
Ct.  Rep.  192.) 

In  a  decision  made  public  in  March,  1910,  by  the  Massachusetts 
Gas  and  Electric  Light  Commission,  the  Board  issued  an  important 
statement  of  its  attitude  regarding  the  practice  of  providing  for 
extensions  and  improvements  of  a  relatively  costly  character  out 
of  income,  instead  of  issuing  new  securities  for  this  purpose.  The 
decision  sustained  the  Beverly  Gas  and  Electric  Company's  rates 
for  both  gas  and  electricity  against  an  appeal  of  consumers  which 
has  been  pending  for  over  a  year,  but  discussed  the  company's 


254  ENGIXEERIXG  VALUATION 

financing  of  extensions  and  improvements  in  the  following  lan- 
guage: 

''Of  the  gross  expenditure  of  the  company,  under  its  present  man- 
agement, for  new  construction,  more  than  one  third,  or  upwards  of 
§180,000,  has  been  obtained  from  earnings,  and  a  large  part  of  this 
in  the  more  recent  years.  These  figures  indicate  that,  notwithstand- 
ing the  numerous  and  fairly  frequent  reduction  in  price  made  by  the 
company,  the  profits,  in  excess  of  di\'idends,  which  have  l^een  used  to 
extend  and  improve  its  plant  have  been  larger  than  can  readilj'  be 
justified  in  \'iew  of  the  duty  which  the  company  owes  the  public.  In 
the  early  days  of  public  ser\-ice  corporations  such  a  policy  was  ver\- 
general  and  justified  by  the  behef  that,  as  the  capital  charge  was  kept 
low  and  the  amount  per  unit  required  for  di%ndends  decreased,  low 
prices  might  be  more  certainly  and  quickly  attained.  If,  however, 
the  claim  now  made  by  some  companies  is  to  be  conceded,  and  the 
same  return  is  to  be  allowed  upon  the  value  of  all  property  employed 
for  the  pubUc  convenience  from  whatever  source  derived,  no  benefit 
accrues  to  the  pubUc  from  such  accmnulation.  If  the  claim  can  be 
successfully  made,  it  amounts  in  effect,  if  not  in  form,  to  a  stock  di\-i- 
dend.  Xor  is  such  a  claim  necessan.'  to  insure  a  continuance  of  the 
commercial  prosperity  of  companies  of  this  class. 

''The  pubUc  has  a  substantial  interest  in  what  remains  of  the  net 
earnings  above  a  fair  di\'idend.  Xo  corporate  interest  properly  \'iewed 
requires  that  such  a  surplus  be  distributed  to  the  stockholders  or  so 
invested  as  to  impose  new  burdens  upon  consumers.  A  public  sendee 
corporation  exercising  a  %irtual  monopoly  is  bound  to  give  its  cus- 
tomers the  best  possible  ser\-ice  at  the  lowest  reasonable  price,  nor  is 
the  discharge  of  this  duty  to  be  measiu'ed  merely  by  a  comparison  with 
the  servnce  and  price  prevailing  elsewhere.  After  a  pajinent  of  reason- 
able operating  expenses,  proper  allowance  for  depreciation  and  emer- 
gencies, and  a  fair  retvun  upon  the  investment,  surplus  earnings 
should  be  used  to  facilitate  further  reductions  in  price.  The  Board  is 
conxinced  that  this  company  no  longer  needs  to  continue,  as  hereto- 
fore, to  pro\'ide  capital  for  extensions  out  of  income.  As  soon  as  the 
combined  effect  of  the  recent  reductions  (which  were  voluntary  —  Eds.) 
and  the  necessan.'  prosp)ective  expenditure  and  changes  shall  be  real- 
ized, if  profits  shall  then  exceed  dividends,  as  in  some  former  years,  it 
will  be  the  plain  duty  of  the  management  to  make  a  further  revision 
of  existing  rates." 

Where  the  public  utility  is  not  controlled  by  a  commission, 
that  is,  when  the  commission  has  no  say  as  to  rates  except  on 
complaint  of  the  public,  as  much  surplus  may  be  added  as  the 
rates  v.'iW  produce,  but  in  few  if  in  any  cases  does  the  law  under 


CAPITALIZATION  255 

which  a  commission  works  ptTinit  of  capitalizing  this  surplus  by 
paying  stock  dividends  or  by  other  means. 

A  i)rivate  corporation  depending  for  its  trade  and  profits  on 
ordinary  business  conii)etition  may  act  as  it  sees  fit  regarding 
capitalization;  in  all  states  but  Massachusetts  it  may  issue  stock 
for  anything  that  it  may  consider  of  sufficient  value;  in  general  it 
may  pay  stock  dividends,  thus  capitalizing  its  surplus,  and  as  long 
as  it  does  not  enter  into  combinations  in  restraint  of  trade,  in 
many  ways  may  conduct  itself  with  much  more  freedom  than  can 
a  public  utilities  corporation.  With  any  corporation,  though,  it 
must  always  be  a  question  of  policy  whether  stock  dividends 
should  be  paid.  This  really  means  a  reinvestment  of  mone}^  in 
the  existing  property  of  the  company,  for  if  the  surplus  should  be 
paid  to  each  stockholder  in  cash,  there  could  be  no  objection  at 
all  to  his  investing  it  where  he  pleased,  and  if  he  thought  the  best 
place  for  such  investment  would  be  in  a  corporation  in  which  he 
had  seen  the  profits  grow,  who  could  object;  but  in  a  public  util- 
ities corporation  this  reinvestment  must  be  exclusively  for  exten- 
sions. But  the  trade  or  public  might  refuse  to  pay  prices  high 
enough  to  enable  him  to  get  a  dividend  on  this  extra  investment, 
in  which  case  it  would  seem  to  be  better  policy  for  him  to  let  the 
surplus  stand  and  by  using  it  in  the  business  make  increased  divi- 
dends on  the  regular  stock  values.  Probably  the  "Chemical  Bank  " 
of  New  York  City  is  one  of  the  best  instances  of  letting  the  origi- 
nal capitalization  stand,  for  before  its  reorganization  on  a  new 
basis  its  original  par  stock  sold  as  high  as  S4800  or  more,  and  the 
dividends  on  this  original  stock  produced  only  2\  per  cent  on 
this  value.  Other  instances  are  among  the  stocks  of  the  older 
wTiting  paper  companies,  organized  more  than  50  years  since, 
which  before  merging  with  other  companies  had  a  market  value 
of  upwards  of  !$35,000  per  share. 

About  the  only  reason  that  can  be  given  for  issuing  dividend 
stock  is  that  there  may  be  more  for  m.anipulation,  for  the  amount 
of  earnings  available  for  dividends  could  be  no  larger,  and  when 
paid  on  the  new  valuation  or  rather  on  the  original  stock  with 
the  added  number  of  shares  due  to  the  stock  dividend  would 
naturally  produce  a  smaller  rate. 

The  question  of  issuing  bonds  for  the  cost  of  phj^sical  property 
and  stock  for  a  bonus  is  too  large  to  be  discussed  here  at  any 
length.  It  may  be  said,  however,  that  when  any  value  accrues 
to  the  stock  it  must  be  obvious  that  it  comes  from  an  overcharge 


256  ENGINEERING  VALUATION 

to  consumers :  if  the  consumer  can  stand  it  or  does  stand  the 
overcharge  even  in  the  face  of  strong  competition,  then  such  value 
is  given  simply  for  greater  ability  or  better  conditions.  In  the 
past  IMassachusetts  is  the  only  state  in  which  it  has  been  impossible 
to  issue  stock  in  this  manner. 

Following  are  a  few  abstracts  from  court  decisions,  and  opin- 
ions of  prominent  writers. 

"Counsel  for  the  company  urge  rather  faintly  that  the  capitalization 
of  the  company  ought  to  have  some  influence  in  the  case  in  determin- 
ing the  valuation  of  the  property.  It  is  a  sufficient  answer  to  this 
contention  that  the  capitalization  is  shown  to  be  considerably  in  excess 
of  any  valuation  testified  to  by  any  witness,  or  which  can  be  arrived 
at  by  any  process  of  reasoning.  The  cause  for  the  large  variation 
between  the  real  value  of  the  property  and  the  capitalization  in  bonds 
and  preferred  and  common  stock  is  ajjparcnt  from  the  testimonj'.  All, 
or  substantially  all,  the  preferred  and  common  stock  was  issued  to 
contractors  for  the  construction  of  the  plant,  and  the  nominal  amount 
of  the  stock  issued  was  greatly  in  excess  of  the  true  value  of  the  property 
furnished  by  the  contracts.  Bonds  and  preferred  and  common  stock 
issued  under  such  conditions  afford  neither  measure  of,  nor  guide  to 
the  value  of  the  property."  (Knoxville  Water  Co.  Case,  29  Sup.  Ct. 
151.) 

"If  a  railroad  company  has  bonded  its  property  for  an  amount 
that  exceeds  its  fair  value,  or  if  its  capitalization  is  largely  fictitious, 
it  may  not  impose  upon  the  public  the  burden  of  increased  rates 
necessary  to  realize  profits  on  this  fictitious  capitalization ;  but  the 
basis  of  all  calculations  as  to  the  reasonableness  of  rates  must  be  the 
fair  value  of  the  property  used  by  the  company  for  the  convenience  of 
the  public.  In  ascertaining  the  value,  the  original  cost  of  construction, 
the  amount  expended  in  permanent  improvements,  the  amount  and 
market  value  of  its  bonds  and  stock,  the  present  as  compared  with  the 
original  cost  of  construction,  the  probable  earning  capacity  of  the 
property  under  particular  rates  prescribed  by  statute,  and  the  sum 
required  to  meet  operating  expenses,  are  all  matters  for  consideration, 
and  are  to  be  given  such  weight  as  may  be  just  and  right  in  each  case." 
(Smith  V.  Ames,  18  Sup.  Ct.  41S.) 

"There  is  considerable  diversity  of  opinion  as  regards  the  proper 
treatment  of  discount  on  securities  sold.  There  is  a  distinction  be- 
tween bonds  representing  corporate  indebtedness  and  having  a  defi- 
nite limitation  as  to  the  time  of  their  redemption,  and  share  capital, 
representing  ownership  and  which  as  a  rule  is  irrcdeemalilc.  In  rela- 
tion to  the  former,  there  can  be  but  one  tenable  view.     If  a  company 


CAPITALIZATION  257 

can  market  its  50-year  4  per  cent  bonds  at  90  per  cent  of  par,  it  means 
that  the  company's  credit  is  on  a  4^  per  cent  basis ;  that  it  could 
market  a  like  security  paying  4-2  per  cent  at  par.  If  it  elects  to  issue 
at  the  lower  rate  it  is  merely  sacrificing  principal  for  the  sake  of  a  reduc- 
tion in  the  annual  interest  charge;  in  other  words,  it  is  prepaying 
interest  which  would  accrue  during  the  life  of  the  issue.  If  $10,000,000 
par  value  were  issued  at  90  per  cent,  the  discount  would  amount  to 
$1,000,000,  and  the  saving  in  interest  to  $50,000  per  year,  or  $2,500,000 
in  50  years.  Obviously  the  company  cannot  claim  the  privilege  of 
capitalizing  the  discount,  while  thereby  availing  itself  of  the  reduction 
in  interest.  If  such  a  course  were  legitimate  in  the  case  of  a  5  or  10 
per  cent  discount,  it  would  be  equally  so  if  the  discount  were  50  or 
75  per  cent,  when  the  absurdity  of  the  proposition  would  be  perfectly 
apparent.  The  somewhat  general  practice  of  prorating  the  discount, 
as  a  charge  against  revenues,  over  the  term  of  the  obligation's  existence 
is  sound ;  but  this  should  be  done,  not  in  equal  installments,  but  on 
the  basis  of  the  appreciated  value  of  the  bond  as  it  approaches  par  at 
maturity.  There  is  no  apparent  objection  to  charging  discount  of  this 
nature  in  a  lump  sum  against  an  accumulated  surplus.  The  capitaliza- 
tion of  discount  on  stocks,  involving  as  it  does  the  introduction  of 
fictitious  values  in  capital  assets,  is  wholly  indefensible."  ("  The  Valua- 
tion of  Railroads,"  Railroad  Age  Gazette,  Jan.  22,  1909.) 

Everett  W.  Burdett,  in  case  of  Worcester  Electric  Company, 
before  the  Massachusetts  Gas  and  Electric  Light  Commission, 
says: 

"It  is  contended  by  some  that  a  Public  Service  Corporation  has  no 
right  to  receive  a  profit  on  property  acquired  by  surplus  earnings. 
But  a  company  can  put  its  surplus  into  stocks  and  bonds  of  other 
corporations  and  enjoy  the  proceeds.  The  Massachusetts  Gas  and 
Electric  Light  Commission  have  ruled  that  what  a  company  has  earned 
and  saved  is  the  property  of  the  compan5^  A  Beverly  company 
used  $180,000  surplus  in  addition  and  extensions,  and  this  was  one 
third  of  all  the  expenditures  of  the  year,  but  it  did  not  influence  the 
board  to  grant  a  petition  for  a  reduction  in  prices.  The  Interstate 
Commerce  Commission  was  referred  to  as  insisting  upon  a  surplus 
fund.  In  the  case  of  the  Chicago,  Burlington  and  Quincy  Railroad 
more  than  half  the  property  was  created  out  of  the  surplus,  and  the 
Interstate  Commerce  Commission  affirmed  the  right  of  a  railroad 
company  to  enjoy  a  return  upon  its  surplus.  The  Pennsylvania 
Railroad  Company  reinvested  two  thirds  of  the  amount  of  the  cost  of 
its  road  east  of  Pittsburgh,  a  sum  amounting  to  $202,000,000,  accu- 
mulated in  twenty  years.  The  Public  Service  Commission  of  the 
First  District  of  New  York  in  one  case  designated  twenty  years  as  the 
life  of  an  electric  light  plant.     The  Wisconsin  Railroad  Commission 


258  ENGINEERING  VALUATION 

allowed  25  per  cent  as  the  junk  value  of  a  steam  plant.  In  the  pres- 
ent case  the  company  sets  3.92  per  cent  as  the  average  annual  rate 
of  depreciation,  equivalent  to  5.24  per  cent  of  present  value. 

"  In  the  matter  of  interest  on  investment  the  Wisconsin  Railroad 
Commis.sion,  in  the  Menomonie  case,  1909,  held  that  7  per  cent  on  cost 
of  reproduction  new  was  a  fair  return.  In  the  IMadison  case,  1910,  it 
was  held  that  8  per  cent  was  fair.  Here  distinction  was  made  be- 
tween interest  and  profit.  Six  per  cent  was  for  interest,  2  per  cent 
for  profit.  IMaj'or  Logan  in  previous  testimony  conceded  that  6  per 
cent  was  a  reasonable  return. 

"Large  profits  do  not  indicate  high  rates.  Here  a  conservative 
management  has  resulted  in  successful  operation.  The  company 
pays  its  president  only  S2500  per  annum." 

In  closing  this  chapter  the  following  excerpt  from  the  decree  of 
the  Supreme  Court  on  the  Knoxville  Water  Case  seems  very  apt: 

"Regulation  of  public  service  corporations,  which  perform  their 
duties  under  conditions  of  necessarj^  monopolj^,  will  occur  with  greater 
and  greater  frequency  as  time  goes  on.  It  is  a  delicate  and  dangerous 
function,  and  ought  to  be  exercised  with  a  keen  sense  of  justice  on 
the  part  of  the  regulating  body,  met  bj'  a  frank  disclosure  on  the  part 
of  the  company  to  be  regulated.  The  courts  ought  not  to  bear  the 
whole  burden  of  saving  property  from  confiscation,  though  they  will 
not  be  found  wanting  where  the  proof  is  clear.  The  legislatures  and 
subordinate  bodies,  to  whom  the  legislative  power  has  been  delegated, 
ought  to  do  their  part.  Our  social  system  rests  largely  upon  the 
sanctity  of  private  property;  and  that  state  or  community  which 
seeks  to  invade  it  will  soon  discover  the  error  in  the  disaster  which 
follows.  The  slight  gain  to  the  consumer,  which  he  would  obtain 
from  a  reduction  in  the  rates  charged  l)y  public  service  corporations, 
is  as  nothing  compared  with  his  share  in  the  ruin  which  would  be 
brought  about  by  denying  to  private  property'  its  just  reward,  thus 
unsettling  values  and  destroying  confidence.  On  the  other  hand,  the 
companies  to  be  regulated  will  find  it  to  their  lasting  interest  to 
furnish  freely  the  information  upon  which  a  just  regulation  can  be 
based."     (29  Sup.  Ct.  Rep.  148.) 


CHAPTER  XIV 
CONTROL  OF  PUBLIC   UTILITIES 

The  method  of  controlHng  all  the  public  utilities  of  a  state 
or  municipality  has  changed  considerably^  in  the  last  few  years, 
such  control  having  been  put  into  the  hands  of  commissions 
established  for  the  purpose  in  several  of  the  states  of  the  Union. 
It  is  a  well-known  fact  that  Massachusetts  has  handled  public 
utilities  in  this  way  for  some  forty  odd  years,  and  most  of  the 
commissions  that  have  been  established  have  been  founded  upon 
principles  originated  by  the  government  of  that  Commonwealth, 
but  in  most  cases  Avith  many  added  powers.  Commissions  have 
been  established  in  the  following  named  states  and  in  the  Province 
of  Quebec. 

LIST   OF   STATE   PUBLIC   SERVICE    COMMISSIONS* 


State 

Title 

Year  Created 

Address 

Massachusetts  .     . 

Railroad  Commission 

1869 

Boston 

Gas  &  Electric  Light  Commission 

1885 

Boston 

Highway  Commission 

1906  1 

Boston 

New  York     .     .     . 

Public  Service  Commission,  First  Dist. 

June  6,  1907 

New  York  City 

Public  Service  Commission,  Second  Dist. 

June  6,  1907 

Albany 

Wisconsin      .     .     . 

Railroad  Commission 

July  9,  1907  2 

Madison 

Oklahoma     .     .     . 

Corporation  Commission 

July  16,  1907  ' 

Guthrie 

Georgia    .... 

Railroad  Commission 

Aug.  22,  1907  < 

Atlanta 

Vermont  .... 

Public  Service  Commission 

1908 

Newport 

Maryland      .     .     . 

Public  Service  Commission 

1910 

Baltimore 

New  Jersey  .     .     . 

Board  of  Public  Utility  Commissioners 

1910 

Trenton 

Connecticut       .     . 

Public  Utilities  Commission 

1911 

Hartford 

Kansas     .... 

Public  Utilities  Commission 

1911 

Topeka 

New  Hampshire     . 

Public  Service  Commission 

1911 

Concord 

Ohio 

Public  Service  Commission 

1911 

Columbus 

Washington        .     . 

Public  Service  Commission 

1911 

Olympia 

Nevada    .... 

Public  Utilities  Commission 

1911 

California     .     .     . 

Public  Utilities  Commission 

1911 

Sacramento 

Province  of  Quebec 

Public  Utilities  Commission 

1909 

Quebec 

'  The  Highway  Commission  was  established  in  189.3.  Its  supervision  over  telegraph  and 
telephone  companies  dates  from  1906. 

-  The  Railroad  Commission  was  created  in  1905,  but  the  act  giving  the  commission  control 
over  public  utilities  was  passed  in  1907. 

^  The  Oklahoma  Corporation  Commission  was  created  by  the  first  state  constitution  which 
was  adopted  Julv  16,  1907,  ratified  Sept.  17,  1907,  and  the  state  was  admitted  to  the  Union 
Nov.  16,  1907. 

'  The  Georgia  Railroad  Commission  was  established  in  1879,  but  the  act  extending  its  con- 
trol to  other  public  service  corporations  was  passed  in  1907. 

*  Railroad  Commissions  controlUag  Common  Carriers  only  are  not  listed. 

259 


260 


ENGINEERING  VALUATION 


Commissions  also  have  been  established  in  the  following  named 
cities: 

LIST   OF   CITY   PUBLIC   SERVICE   COMMISSIONS 


City 

Title 

Year  Created 

Kansas  City,  Mo 

Seattle 

Los  Angeles 

St.  Joseph,  Mo 

St.  Louis 

Houston,  Texas        

Wilmington,  Del 

Public  Utilities  Commission 

Superintendent  of  Public  Utilities 

Board  of  Public  Utilities 

Public  Utilities  Commission 

Public  Ser\'ice  Commission 

Public  Service  Commissioner 

Board  of  Public  Utility  Commissioners 

190S 
1908 
1909 
1909 
1909 
1911 
19U 

In  New  York  State,  so  vast  are  the  properties  coming  under 
the  control  of  these  commissions  that  two  districts  have  been 
established,  one,  the  Public  Service  Commission  of  the  First  Dis- 
trict, having  charge  of  all  public  utilities  in  Greater  New  York, 
covering  railroads,  street  railways,  electric  light  companies,  gas 
companies,  telegraph  companies,  telephone  companies,  and  ex- 
press companies,  and  the  Public  Service  Commission  of  the  Second 
District,  having  in  charge  all  similar  public  utilities  over  all  the 
state  outside  of  Greater  New  York. 

The  following  statement  of  the  powers  of  the  Public  Service 
Commission  of  New  York,  First  District,  is  abstracted  from  an 
article  on  "The  Fruits  of  PubHc  Regulation  in  New  York,"  pub- 
lished in  the  January,  1911,  number  of  the  Annals  of  the  Ameri- 
can Academy  of  Political  and  Social  Science,  by  Honorable 
Milo  R.  Maltbie,  a  member  of  that  commission. 

Powers  and  Duties 

"1.  To  examine  into  the  general  condition,  capitalization,  franchises 
and  management  of  public  service  corporations ;  to  compel  the  produc- 
tion of  all  records,  documents  and  papers,  and  to  summon  witnesses. 

"  2.  To  establish  a  uniform  system  of  accounts  and  records  and  pre- 
scribe the  form  of  annual,  quarterly  and  monthly  reports. 

"  3.  To  order  repairs  or  changes  in  corporate  property,  the  use  of 
additional  facilities,  or  the  adoption  of  improved  methods  of  opera- 
tion, in  order  to  secure  safe  and  adequate  service. 

"4.  To  test  gas  and  electric  meters,  approve  types  of  meters,  and 
establish  standards  of  quality  for  gas  and  electric  service. 

"  5.  To  fix  just  and  reasonable  rates  to  be  charged  by  public  service 
corporations,  to  prevent  unjust  discrimination,  and  to  require  two 
or  more  carriers  to  establish  through  routes  and  fix  joint  rates  for 
through  service. 


CONTROL   OF  PUBLIC   UTILITIES  261 

"  6.  To  entertain  complaints  and  after  due  hearing  make  such  order 
as  will  remove  the  cause  of  complaint. 

"  7.  To  grant  or  withhold  the  certificate  needed  by  a  public  service 
corporation  before  it  can  begin  new  construction  or  exercise  a  franchise 
or  right  not  already  exercised. 

"  8.  To  approve  or  disapprove  the  transfer  of  a  franchise,  or  the 
making  of  a  contract  reflating  to  a  franchise. 

"  9.  To  give  or  withhold  permission  for  the  issuing  of  corporate  secu- 
rities, or  for  the  merger  of  existing  companies ;  but  not  to  permit  the 
capitalization  of  any  merger  or  franchise  itself. 

"10.  To  grant  or  refuse  permission  for  the  transfer  of  stock  in  a  public 
service  corporation  to  a  similar  corporation,  or  for  the  acquisition  of 
more  than  ten  per  cent  of  such  stock  by  any  corporation. 

"11.  To  grant,  subject  to  the  approval  of  the  Board  of  Estimate  and 
Apportioimient,  franchises  for  rapid  transit  railroads,  whether  sub- 
ways, tunnels,  elevated  roads  or  continuations  of  trunk  lines,  such  as 
the  recent  Pennsylvania  Railroad  extensions. 

"  12.  Subject  to  the  approval  of  the  same  board,  to  lay  out  municipal 
rapid  transit  routes,  prepare  plans,  obtain  contractors,  supervise 
construction,  and  secure  operators  for  such  routes,  or  under  certain 
conditions  to  operate  them  directly. 

"  All  freight  and  passenger  tariffs,  including  joint  tariffs  and  the  names 
of  participating  carriers,  and  all  contracts  or  arrangements  relating 
to  transportation,  must  be  filed  with  the  Commission.  The  Commis- 
sion has  also  required  the  rate  schedules  of  all  gas  and  electric  com- 
panies to  be  filed." 

Farther  on  in  his  article  Mr.  Maltbie  has  the  following  to  say 
regarding  capitalization: 

"  (1)  The  capitalization  of  franchises  will  not  be  allowed,  directly  or 
indirectly,  except  so  far  as  permitted  by  statute. 

"  (2)  Overcapitalization  leads  to  inferior  service  and  unwarranted 
exactions.  The  people  of  New  York  have  too  vivid  evidence  upon  this 
point  to  forget  its  importance. 

"  (3)  The  mere  fact  of  investment  does  not  establish  a  perpetual  value 
not  only  because  a  mistake  in  judgment  may  be  made,  but  also  liecause 
property  may  be  allowed  to  deteriorate,  because  progress  in  the  arts 
may  make  it  obsolete,  and  because  a  change  in  economic  conditions 
may  decrease  the  use  made  of  it  by  the  public.  It  is  a  well  known  fact, 
and  was  stated  in  evidence,  that  the  physical  property  of  the  Third 
Avenue  system  was  allowed  to  fall  into  disrepair.  Certain  lines  are 
still  operated  by  horses,  certainly  an  obsolete  method  of  transpor- 
tation. Other  lines  have  ceased  to  be  of  value,  and  their  operation  has 
practically  been  abandoned.     To  assert  that  because  a  company  at  one 


262  ENGINEERING  VALUATION 

time  put  money  into  property  which  has  become  useless,  wornout  and 
obsolete,  a  successor  company  which  purchases  that  property  at  fore- 
closure sale  should  be  allowed  to  capitalize  for  the  amount  originally 
expended  is  so  absurd  as  not  to  require  further  discussion.  Invest- 
ment may  be  e\'idence  of  the  good  intentions  of  the  investor,  but  it  is 
not  an  infallible  standard  of  perpetual  value.  The  Commission  believes 
the  proposition  to  be  sound  that  capitalization  should  have  a  direct  relation 
to  value. 

"  (4)  The  present  value  of  the  property'',  as  shown  by  a  careful  ap- 
praisal, allowance  being  made  for  contractor's  profit,  engineering,  admin- 
istration, development  expenses  and  other  legitimate  expenses,  was 
several  million  dollars  below  the  proposed  capitalization.  In  arriving  at 
this  conclusion,  the  Commission  adopted  the  principles  (a)  that  the  pres- 
ent value  of  property  is  not  determined  by  the  original  cost,  (6)  that 
allowance  must  be  made  for  appreciation  and  depreciation,  (c)  that 
its  actual  condition,  its  age,  its  adequacy,  its  fitness  to  the  needs  of 
the  community  are  most  important  and  fundamental  considerations, 
(d)  that  property  that  has  ceased  to  exist,  although  originally  a  le- 
gitimate charge  to  capital,  should  not  be  capitalized  in  perpetuity, 
and  (e)  that  charges  for  maintenance,  replacements  and  supercessions 
are  prior  claims  to  dividends. 

"  (5)  The  net  earnings  for  any  single  j'ear  or  series  of  years  are  not 
a  proper  basis  for  determining  the  capitalization  of  a  compam^  par- 
ticularly when  the  rates  charged  for  the  service  rendered  may  be 
regulated  by  the  state.  An  ordinary  business  corporation  fixes  its 
own  charges  ;  it  is  not  subject  to  state  regulation ;  but  a  public  service 
corporation  does  not  have  such  privilege.  The  fundamental  factor  in 
rate  regulation  is  a  fair  return  upon  the  value  of  the  property.  Hence, 
if  a  company  issued  stocks  and  bonds  upon  the  basis  of  earnings  for  a 
given  year  or  period,  and  if  it  were  found  that  the  rates  then  charged 
were  too  high  and  were  reduced  by  the  state,  resulting  in  the  reduc- 
tion also  of  net  earnings,  the  capitalization  once  justified  b}^  earnings 
would  be  no  longer  proper.     This  is  illogical  and  unsound. 

"  (6)  The  amount  of  capital  represented  by  bonds  should  not  be  in 
excess  of  the  amount  upon  which  there  is  definite  certainty  that  interest 
may  be  earned.  It  would  obviously  be  unwise  and  useless  to  approve 
a  plan  which  might  easily  mean  another  foreclosure  and  reorganization 
in  a  few  years.  This  is  the  second  time  within  ten  years  that  the 
Third  Avenue  Company  has  been  in  the  hands  of  a  receiver.  It  is 
time  that  a  conservative  plan  were  adopted,  and  upon  such  sound 
principles  that  another  cataclysm  will  not  be  necessary. 

"  (7)  The  applicants  admitted  that  the  present  earnings  were  not 
sufficient  to  pay  interest  and  dividends  upon  the  proposed  issues,  and 
the  Commission  found  that  the  prospective  earnings  were  so  uncer- 
tain that  ajDj^roval  should  not  be  given." 


i 


CONTROL  OF  PUBLIC  UTILITIES  263 

One  of  the  most  important  powers  conferred  upon  commissions 
of  this  kind  is  that  of  passing  upon  the  securities  of  the  pubHc 
utihties  corporations.  I  quote  as  follows  from  the  article  by 
Mr.  Maltbie: 

"Every  application  is  subjected  to  a  searching  investigation  into  the 
condition  of  the  company's  finances,  and  often  an  appraisal  of  its  phys- 
ical property  has  been  made.  The  purposes  for  which  the  securities 
are  to  be  issued  are  carefully  scrutinized  to  see  that  no  charges  are 
made  to  capital  that  should  go  to  operating  expenses. 

"  The  order  of  approval  states  the  purposes  for  which  the  money  may 
be  expended,  the  rate  at  which  the  securities  may  be  issued,  the  period 
within  which  any  discounts,  commissions  and  expenses  of  the  issue 
shall  be  repaid  and  often  the  method  of  amortization.  It  usually 
provides  also  for  periodic  reports  to  the  Commission,  the  audit  of  the 
accounts  by  employees  of  the  Commission  and  public  sale  to  the  highest 
bidder,  unless  a  certain  price  is  realized  at  private  sale." 


CHAPTER   XV 
COURT   DECISIONS 

Consolidated  Gas  Co.  Case 

William  R.  Willcox,  et  al.,  Constituting  the  Public  Ser- 
vice Commission,  etc.,  of  New  York,  Appts.,  v.  Consolidated 
Gas  Co.  of  New  York.     (No.  396.) 

City  of  New  York,  Appt.,  v.  Consolidated  Gas  Co.  of  New 
York.     (No.  397.) 

William  S.  Jackson,  as  Attorney  General  of  the  State  of 
New  York,  Appt.,  v.  Consolidated  Gas  Co.  of  New  York. 
(No.  398.) 

(29  Sup.  Ct.  Rep.  192.) 

Syllabus. 

Courts  —  Federal   Courts  —  Jurisdiction  —  Enjoining   En- 
forcement of  Gas  Rates 

1.  A  Federal  circuit  court,  if  properly  appealed  to,  cannot 
decline,  on  the  ground  of  discretion  or  comity,  to  take  jurisdiction 
of  a  suit  to  enjoin  the  enforcement  of  state  statutes  fixing  gas  rates 
which  are  asserted  to  violate  the  Federal  Constitution. 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 

2.  Legislative  regulation  of  gas  rates  is  invalid,  where  such  rates 
are  plainly  unreasonable  to  the  extent  that  their  enforcement 
will  be  equivalent  to  the  taking  of  property  for  public  use  without 
such  compensation  as,  under  the  circumstances,  is  just,  both  to 
the  owner  and  the  public.  There  must  be  a  fair  return  upon  the 
reasonable  value  of  the  property  at  the  time  it  is  being  used  for 
the  public. 

Gas  —  Rates  —  Enjoining  Enforcement 

3.  The  case  must  be  a  clear  one  before  the  courts  should  be 
asked  to  interfere  by  injunction  with  state  legislation  regulating 
gas  rates,  in  advance  of  any  actual  experience  of  the  practical 
result  of  such  rates. 

2G4 


CONSOLIDATED  GAS  COMPANY  CASE  265 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 
—  Franchise  Valuation 

4.  The  valuation  of  the  franchises  of  the  constituent  gas  com- 
panies as  fixed  by  them  when  organizing  a  consoUdated  corpora- 
tion pursuant  to  New  York  Laws,  1884,  chap.  3G7,  which  valuation 
was  included  in  the  total  sum  for  which  the  consolidated  corpora- 
tion issued  its  stock,  must  be  accepted  l)y  the  courts  in  testing  the 
reasonableness  of  legislative  regulation  of  gas  rates  as  conclusive  of 
such  value  at  the  time  of  consolidation,  where  the  validity  of  the 
agreement  fixing  the  valuation  has  always  been  recognized,  and 
the  stock  has  earned  large  dividends  and  has  been  largely  dealt  in 
for  many  years  on  the  basis  of  the  validity  of  the  valuation  and  of 
the  stock. 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 
—  Increase  in  Franchise  Valuation 

5.  Increase  since  consolidation  of  the  tangible  assets  of  a  con- 
solidated gas  company  and  in  the  amount  of  gas  supplied  by  it 
does  not  justify  the  court,  when  testing  the  reasonableness  of  the 
rates  fixed  by  statute,  in  attributing  a  proportional  increase  to  the 
value  of  the  franchises  as  fixed  by  the  constituent  companies  at 
the  time  of  consolidation. 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 

—  Income 

6.  There  is  no  particular  rate  of  compensation  which  any  cor- 
poration subject  to  legislative  control  respecting  rates  has  the  right 
to  obtain  without  legislative  interference. 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 

—  Income 

7.  Gas  rates  which  will  yield  to  a  corporation  having  a  mo- 
nopoly of  the  gas  service  in  New  York  City  a  return  of  6  per  cent 
upon  the  fair  value  of  the  property  actually  used  by  such  com- 
pany in  its  business  are  not  confiscatory. 

Gas  —  Rates  —  Enjoining  Enforcement 

8.  A  court  of  equity  ought  not  to  interfere  by  injunction  with 
state  legislation  fixing  gas  rates  before  a  fair  trial  has  been  made 
of  continuing  the  business  under  such  rates,  where  the  rates  com- 


266  ENGINEERING  VALUATION 

plained  of  show  a  very  narrow  line  of  division  between  possible 
confiscation  and  proper  regulation,  as  based  upon  the  findings 
as  to  the  value  of  the  property,  and  the  division  depends  upon 
variant  opinions  as  to  value  and  upon  the  results  in  the  future  of 
operating  under  such  rates. 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 

—  Franchise  Valuation 

9.  The  assessed  value  for  taxation  of  the  franchises  of  a  gas 
company  furnishes  no  criterion  by  which  to  ascertain  their  value, 
when  testing  the  reasonableness  of  gas  rates  as  fixed  by  statute, 
where  the  taxes  are  treated  by  the  company  as  part  of  its  operating 
expenses,  to  be  paid  out  of  its  earnings  before  the  net  amount 
applicable  to  dividends  can  be  ascertained. 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 

—  Value  of  Good  Will 

10.  No  allowance  for  the  value  of  the  good  will  should  be  made 
in  estimating  the  value  of  the  property  of  a  gas  company  upon 
which  it  is  entitled  to  earn  a  fair  return,  for  the  purpose  of  testing 
the  reasonableness  of  the  rates  fixed  by  statute,  where  such  com- 
pany is  secure  from  possible  competition. 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 

—  Valuation 

11.  The  valuation  of  the  property  of  a  gas  company,  upon  which 
it  is  entitled  to  a  fair  return,  must,  as  a  general  rule,  be  determined 
as  of  the  time  w'hen  the  inquiry  is  made  regarding  the  reasonable- 
ness of  rates  fixed  by  statute,  giving  the  company  the  benefit  of 
any  increase  in  the  value  of  the  property  since  it  was  acquired. 

Gas  —  Legislative  Regulation  of  Pressure 

12.  The  requirements  as  to  gas  pressure  made  by  New  York 
Laws,  1905,  chap.  756,  and  Laws,  1906,  chap.  125,  fixing  gas  rates 
in  New  York  City,  are  confiscatory,  where,  to  put  this  pressure 
upon  the  mains  and  other  service  pipes,  in  their  present  condition, 
is  to  run  a  great  risk  of  explosion  and  consequent  disaster,  and 
to  eliminate  such  danger  requires  an  expenditure  of  many  millions 
of  floUars,  from  which  no  return  can  l)e  had  at  the  rates  estal>lished 
by  those  acts. 


CONSOLIDATED  GAS  COMPANY  CASE  267 

Statutes  —  Partial  Invalidity 

13.  The  invalidity  of  the  provisions  as  to  gas  pressure  and 
penalties  contained  in  New  York  Laws,  1905,  chap.  736,  and  Laws, 
1906,  chap.  125,  regulating  gas  rates  in  New  York  City,  does  not 
invalidate  the  provisions  of  those  acts  respecting  rates,  from  which 
the  invalid  provisions  are  clearly  separable. 

Gas  —  Rates  —  Legislative    Regulation  —  Reasonableness 
—  Discrimination 

14.  A  discrimination  between  the  individual  consumer  and  the 
city  in  the  provisions  of  New  York  Laws,  1905,  chap.  730  and 
Laws,  1906,  chap.  125,  fixing  gas  rates  in  New  York  City,  is  not 
material  to  the  inquiry  as  to  the  reasonableness  of  such  rates  if 
the  total  profits  from  the  gas  supplied  to  all  consumers  is  suffi- 
cient to  insure  the  requisite  return  upon  the  property  used  by  the 
gas  company  in  its  business. 

Dismissal  and  Nonsuit  —  Dismissal  without  Prejudice 

15.  The  dismissal  of  a  bill  which  seeks  to  enjoin  the  enforcement 
of  legislative  regulation  of  gas  rates  as  confiscatory  in  advance  of 
any  actual  experience  of  the  practical  result  of  such  rates  should 
be  without  prejudice,  where  such  practical  experience  may  pre- 
vent the  complainant  from  ol^taining  a  fair  return  upon  the 
property  used  by  it  in  its  business. 

[Nos.  396,  397,  398.] 
Argued  November  4,  5,  6,  1908.     Decided  January  4,  1909. 

Appeals  from  the  circuit  court  of  the  United  States  for  the 
southern  district  of  New  York  to  review  a  decree  enjoining  the 
enforcement  of  legislative  regulation  of  gas  rates.  Reversed  with 
directions  to  dismiss  the  bill  without  prejudice. 

See  same  case  below,  157  Fed.  849. 

Statement  by  Mr.  Justice  Peckham  : 

"The  appellee,  complainant  below,  filed  its  bill  May  1,  1906,  in  the 
United  States  circuit  court  for  the  southern  district  of  New  York, 
against  the  city  of  New  York,  the  attorney  general  of  the  state,  the 
district  attorney  of  New  York  county,  and  the  gas  commission  of  the 
state,  to  enjoin  the  enforcement  of  certain  acts  of  the  legislature  of 


268  ENGINEERING  VALUATION 

the  state,  as  well  as  of  an  order  made  b}'  the  gas  commission,  February 
23,  1906,  to  take  effect  Maj^  1,  1906,  relative  to  rates  for  gas  in  New 
York  City. 

"  Since  the  commencement  of  the  suit,  the  gas  commission  has  been 
abolished  and  the  public  service  commission  has  been  created  by  the 
legislature  in  its  stead.  The  official  term  of  Attorney  General  JMeyer 
has  also  expired,  and  Attorney  General  Jackson,  his  successor,  has  been 
substituted  in  his  place. 

"  The  ground  for  the  relief  asked  for  in  the  bill  was  the  alleged  uncon- 
stitutionality of  the  acts  and  the  order,  because  the  rates  fixed  were 
so  low  as  to  be  confiscatory.  Upon  filing  the  bill  a  preliminarj^  mjunc- 
tion  was  granted  (146  Fed.  150),  and,  after  issue  was  joined,  the  case 
was  referred  to  one  of  the  standing  masters  of  the  court  to  take  testi- 
mony, in  conformity  to  the  practice  indicated  in  Chicago,  M.  &.  St. 
P.  R.  Co.  V.  Tompkins,  176  U.S.  167,  179,  44  L.  ed.  417,  422,  20  Sup. 
Ct.  Rep.  336. 

"  A  hearing  was  had  before  the  master,  who  reported  in  favor  of  the 
complainant.  The  case  then  came  before  the  circuit  court,  and,  after 
argument,  a  final  decree  was  entered,  restraining  defendants  from 
enforcing  the  provisions  of  the  acts  and  the  order  relating  to  rates  or 
penalties.  157  Fed.  849.  These  various  defendants,  except  the  district 
attorney,  have  taken  separate  appeals  directly  to  this  court  from  the 
decree  so  entered.  The  acts  which  are  declared  void  as  unconstitu- 
tional are  chapter  736  of  the  Laws  of  1905,  which  limits  the  price  of 
gas  sold  to  the  city  of  New  York  to  a  sum  not  to  exceed  75  cents  per 
thousand  cubic  feet.  The  fact  also  requires  that  the  gas  sold  shall 
have  a  specified  illuminating  power,  and  a  certain  pressure  at  all  dis- 
tances from  the  place  of  manufacture.  Penalties  are  attached  to  a 
violation  of  the  act.  The  other  act  is  chapter  125  of  the  Laws  of  1906, 
limiting  the  prices  of  gas  in  the  boroughs  of  Manhattan  and  the  Bronx, 
to  other  con.sumers  than  the  city  of  New  York,  to  80  cents  per  thou- 
sand cubic  feet,  with  like  penalties  as  in  the  act  of  1905,  and  with  the 
same  provisions  as  to  illuminating  power  and  the  pressure  in  the  ser- 
vice mains.  The  order  which  was  declared  invalid  was  one  made  by 
the  gas  commission  created  under  and  by  virtue  of  chapter  737  of  the 
Laws  of  1905,  the  order  providing  that  the  i)rice  of  gas  in  the  city  should 
be  not  more  than  SO  cents  to  consum(>rs  other  than  the  city  of  New 
York.  The  order  had  the  same  provisions  as  to  illuminating  power  and 
pressure  as  the  acts  above  mentioned.  The  master  and  the  court 
below  found  that  the  80-cent  rate  was  so  low  as  to  amount  to  confisca- 
tion, and  hence  the  acts  and  the  order  were  invalid  as  in  violation  of 
the  Federal  Constitution." 

Messrs.  Edward   V>.  Whitney  and  George   S.  Coleman  for  the 
Public  Service  Commission. 


CONSOLIDATED  GAS  COMPANY  CASE  2G9 

Messrs.  Alton  B.  Parker,  William  P.  Burr,  and  Francis  K.  Pendle- 
ton for  the  city  of  New  York. 

Mr.  William  S.  Jackson  in  propria  persona  for  the  Attorney 
General. 

Messrs.  James  M.  Beck,  John  A.  Garver,  Charles  F.  Mathew- 
son,  and  Shearman  &  Sterling  for  the  Consolidated  Gas  Company. 

Messrs.  W.  Bourke  Cockran  and  Nathan  Matthews  as  amid 
ciirice. 

Mr.  Justice  Peckham,  after  making  the  foregoing  statement, 
delivered  the  opinion  of  the  court : 

"  At  the  outset  it  seems  to  us  proper  to  notice  the  views  regarding  the 
action  of  the  court  below,  which  have  been  stated  by  counsel  for  the 
appellants,  the  public  service  commission,  in  their  brief  in  this  court. 
They  assume  to  criticize  that  court  for  taking  jurisdiction  of  this  case, 
as  precipitate,  as  if  it  were  a  question  of  discretion  or  comity,  whether 
or  not  that  court  should  have  heard  the  case.  On  the  contrary,  there 
was  no  discretion  or  comity  about  it.  When  a  Federal  court  is  properly 
appealed  to  in  a  case  over  which  it  has  by  law  jurisdiction,  it  is  its  duty 
to  take  such  jurisdiction  (Cohen  v.  Virginia,  6  Wheat,  264,  404,  5  L. 
ed.  257,  291),  and,  in  taking  it,  that  court  cannot  be  truthfully  spoken 
of  as  precipitate  in  its  conduct.  That  the  case  may  be  one  of  local 
interest  only  is  entirely  immaterial,  so  long  as  the  parties  are  citizens 
of  different  states  or  a  question  is  involved  which,  by  law,  brings  the 
case  within  the  jurisdiction  of  a  Federal  court.  The  right  of  a  party 
plaintiff  to  choose  a  Federal  court  where  there  is  a  choice,  cannot  be 
properly  denied.  Re  Metropolitan  R.  Receivership,  208  U.S.  90-110, 
52  L.  ed.  403-412,  28  Sup.  Ct.  Rep.  219 ;  Prentis  v.  Atlantic  Coast  Line 
R.  Co.  211  U.S.  210,  ante,  67,  29  Sup.  Ct.  Rep.  67.  In  the  latter  case 
it  was  said  that  a  plaintiff  could  not  be  forbidden  to  try  the  facts  upon 
which  his  right  to  relief  is  based  before  a  court  of  his  own  choice,  if 
otherwise  competent.  It  is  true  an  application  for  an  injunction  was 
denied  in  that  case  because  the  plaintiff  should,  in  our  opinion,  have 
taken  the  appeal  allowed  him  by  the  law  of  Virginia,  while  the  rate  of 
fare  in  htigation  was  still  at  the  legi.slative  stage,  so  as  to  make  it  abso- 
lutely certain  that  the  officials  of  the  state  would  try  to  establish  and 
enforce  an  unconstitutional  rule. 

"  The  case  before  us  is  not  like  that.  It  involves  the  constitutionality, 
with  reference  to  the  Federal  Con.stitution,  of  two  acts  of  the  legisla- 
ture of  New  York,  and  it  is  one  over  which  the  circuit  court  undoubtedly 
had  jurisdiction  under  the  act  of  Congress,  and  its  action  in  taking  and 
hearing  the  case  cannot  be  the  subject  of  proper  criticism. 

"  An  examination  of  the  record  herein,  with  reference  to  the  questions 
involved  in  the  merits,  shows  that  the  act  under  which  the  gas  com- 


270  ENGINEERING  VALUATION 

mission  was  appointed  was,  subsequently  to  the  commencement  and 
trial  of  this  suit,  declared,  on  grounds  not  here  material,  to  be  uncon- 
stitutional by  the  court  of  appeals  of  New  York.  Saratoga  Springs 
V.  Saratoga  Gas,  Electric  Light,  &  P.  Co.,  191  N.  Y.  123,  83  N.  E.  693, 
Februarj'  18,  1908.  The  order  made  bj^  the  commission  must  there- 
fore be  regarded  as  invalid.  It  is  not  important  in  this  case,  because 
the  act  of  the  legislature  of  1906  makes  the  same  provision  as  to  the 
price  of  gas  to  consumers  other  than  the  city  that  the  order  does.  We 
have,  as  remaining  to  be  considered,  the  above  mentioned  two  acts  of 
the  legislature. 

"  The  question  arising  is  as  to  the  validity  of  the  acts  limiting  the  rates 
for  gas  to  the  prices  therein  stated.  The  rule  by  which  to  determine  the 
question  is  pretty  well  established  in  this  court.  The  rates  must  be 
plainly  unreasonable  to  the  extent  that  their  enforcement  would  be 
equivalent  to  the  taking  of  property  for  public  use  without  such 
compensation  as,  under  the  circumstances,  is  just  both  to  the  owner 
and  the  public.  There  must  be  a  fair  return  upon  the  reasonable 
value  of  the  property  at  the  time  it  is  being  used  for  the  public.  San 
Diego  Land  &  Town  Co.  v.  National  City,  174  U.S.  739,  757,  43  L.  ed. 
1154,  1161,  19  Sup.  Ct.  Rep.  804;  San  Diego  Land  &  Town  Co.  v. 
Jasper,  189  U.S.  439,  442,  47  L.  ed.  892,  894,  23  Sup.  Ct.  Rep.  571. 

"  Many  of  the  cases  are  cited  in  Knoxville  r.  Ejioxville  Water  Co. 
just  decided.  [211  U.S.  —  ,  ante,  148,  29  Sup.  Ct.  Rep.  148.]  The  case 
must  be  a  clear  one  before  the  courts  ought  to  be  asked  to  interfere 
with  state  legislation  upon  the  subject  of  rates,  especially  before  there 
has  been  any  actual  experience  of  the  practical  result  of  such  rates. 
In  this  case  the  rates  have  not  been  enforced  as  yet,  because  the  bill 
herein  was  filed,  and  an  injunction  obtained  restraining  their  enforce- 
ment, before  they  came  into  actual  operation. 

"  In  order  to  determine  the  rate  of  return  ujwn  the  reasonable  value 
of  the  property  at  the  time  it  is  being  used  for  the  public,  it,  of  course, 
becomes  necessary  to  ascertain  what  that  value  is.  A  very  great 
amount  of  evidence  was  taken  before  the  master  upon  that  subject, 
which  is  included  in  five  large  volumes  of  the  record.  Valuations  by 
expert  witnesses  were  given  as  to  the  value  of  the  real  estate  owned  by 
the  complainant,  and  as  to  the  value  of  the  mains,  service  pipes,  plants, 
meters,  and  miscellaneous  personal  property. 

"  The  value  of  real  estate  and  plant  is,  to  a  considerable  extent,  matter 
of  opinion ;  and  the  same  may  be  said  of  personal  estate  when  not 
based  upon  the  actual  cost  of  material  and  construction.  Deteriora- 
tion of  the  value  of  the  plant,  mains,  and  pipes  is  also,  to  some  extent, 
based  upon  opinion.  All  these  matters  make  questions  of  value  some- 
what uncertain;  while  added  to  this  is  an  alleged  prospective  loss  of 
income  from  a  reduced  rate,  —  a  matter  also  of  much  uncertainty, 
dejK'nding  upon  the  extent  of  the  reduction  and  the  probable  increased 


CONSOLIDATED  GAS  COMPANY  CASE  271 

consumption,  —  and  wc  have  a  problem  as  to  the  character  of  a  rate 
which  is  difficult  to  answer  without  a  practical  test  from  actual  opera- 
tion of  the  rate.  Of  course,  there  may  be  cases  where  the  rate  is  so 
low,  upon  any  reasonable  basis  of  valuation,  that  there  can  be  no  just 
doubt  as  to  its  confiscatory  natiu'e ;  and,  in  that  event,  there  should  be 
no  hesitation  in  so  deciding  and  in  enjoining  its  enforcement  without 
waiting  for  the  damage  which  must  inevitably  accompany  the  opera- 
tion of  the  business  under  the  objectionable  rate.  But,  where  the  rate 
complained  of  shows,  in  any  event,  a  very  narrow  line  of  division  be- 
tween possible  confiscation  and  proper  regulation,  as  based  upon  the 
value  of  the  property  found  by  the  court  below,  and  the  division  de- 
pends upon  opinions  as  to  value,  which  differ  considerably  among  the 
witnesses,  and  also  upon  the  results  in  the  future  of  operating  under  the 
rate  objected  to,  so  that  the  material  fact  of  value  is  left  in  much  doubt, 
a  court  of  equity  ought  not  to  interfere  by  injunction  before  a  fair 
trial  has  been  made  of  continuing  the  business  under  that  rate,  and  thus 
eliminating,  as  far  as  is  possible,  the  doubt  arising  from  opinions  as 
opposed  to  facts. 

"  A  short  history  of  the  complainant,  as  to  its  incorporation  and  its 
capital,  and  the  method  by  which  the  value  of  its  franchises  was 
arrived  at,  will  render  the  further  examination  of  the  case  more  in- 
telligible. 

"  Prior  to  1884  there  were  seven  gaslight  companies  in  New  York 
City,  each  operated  under  separate  charters,  granted  at  different  times 
between  the  years  1823  and  1865  or  1871.  They  each  had  the  right 
to  use  the  streets  of  certain  portions  of  the  city  for  the  purpose  of 
laying  their  mains  and  service  pipes  in  order  to  furnish  gas  to  the  city 
and  the  citizens.  Not  one  of  the  companies  had  ever  been  called  upon 
to  pay  a  penny  for  such  right,  but  the  grant  to  each  was,  in  that  aspect, 
a  gratuity.  It  was  not,  at  the  time  of  granting  franchises  such  as  these, 
the  custom  to  pay  for  them. 

"  In  1884,  by  chapter  367  of  the  laws  of  that  year,  authority  to  consoli- 
date manufacturing  corporations  was  granted  upon  conditions  men- 
tioned in  the  act.  The  directors  of  the  corporations  proposing  to  con- 
solidate were  to  make  an  agreement  for  consolidation,  embracing, 
among  other  things,  the  amount  of  capital  and  the  number  of  shares  of 
stock  into  which  it  should  be  divided,  the  capital  not  to  be  in  amount 
more  'than  the  fair  aggregate  value  of  the  property,  franchises,  and 
rights  of  the  several  companies  to  be  consolidated.'  The  agreement 
was  not  to  be  valid  until  submitted  to  the  stockholders  of  each  of  the 
companies  and  approved  by  two  thirds  of  each.  The  constituent  com- 
panies, which  were  afterwards  consolidated  under  their  agreement, 
and  pursuant  to  the  act  mentioned,  were  six  in  number,  the  seventh,  the 
Mutual  Company,  withdrawing.  The  companies  agreed  upon  the  valu- 
ation of  their  property,  which  was  to  be  paid  for  in  the  stock  of  the  con- 


272  ENGINEERING  VALUATION 

solidated  company,  and  the  original  stock  held  by  the  stockholders 
of  each  company  was  surrendered  to  the  consolidated  company.  The 
value  of  the  franchise  of  all  the  companies  was  set  at  the  figure  of 
87,781,000.  The  court  below  said  that  the  master  reported  there  was 
little  direct  evidence  before  him  as  to  the  value  of  the  franchises,  to 
which  the  court  added  that  if  the  master,  by  direct  evidence,  meant 
testimony  of  the  same  kind  regarding  their  value  as  had  been  offered 
regarding  every  item  of  tangible  property,  there  was  none  at  all. 

"  The  court  further  stated  that  it  does  not  appear  in  the  evidence  how 
the  valuation  of  the  franchises  was  measured,  or  why  the  figures 
selected  were  chosen,  but  that  it  was  true,  that  when  complainant  was 
organized,  in  1884,  under  the  consolidation  statute,  which,  in  terms, 
permitted  it  to  acquire  the  property  and  franchises  of  the  other  com- 
panies, it  issued  stock  of  the  par  value  of  §7,781,000,  representing  the 
franchises  it  then  acquired  and  nothing  else,  and  that  the  stock  was 
held  Ijy  purchasers  who,  I  am  compelled  to  think,  had  a  right  to  rely 
upon  legal  protection  for  legally  issued  stock.  It  is  not,  of  course, 
contended  there  was  special  stock  issued  for  this  particular  item,  but 
it  was  included  in  the  total  sum  for  which  the  consolidated  company 
issued  its  stock,  and,  upon  its  receipt,  the  stockholders  in  the  various 
companies  surrendered  their  stock  in  those  companies.  The  result 
was  that  the  amount  of  the  stock  issued  by  the  consolidated  company 
was  increased  by  S7,781,000,  representing  a  value  of  franchises  which 
was  agreed  upon  by  the  stockholders  in  the  companies,  and  which  had 
never  cost  any  of  them  a  single  penny. 

"  It  cannot  be  disputed  that  franchises  of  this  nature  are  propert}'  and 
cannot  be  taken  or  used  by  others  without  compensation.  Monongahela 
Navigation  Co.  v.  United  States,  148  U.  S.  312,  37.  L.  ed.  463,  13  Sup. 
Ct.  Rep.  622;  People  v.  O'Brien,  111  N.  Y.  1,  2  L.  R.  A.  255,  7  Am. 
St.  Rep.  684,  18  N.  E.  692,  and  cases  cited.  The  important  question 
is  always  one  of  value.  Taking  their  value  in  this  case  as  arrived  at 
by  agreement  of  their  owners,  at  the  time  of  the  consolidation,  that 
value  has  been  increased  by  the  finding  of  the  court  below  to  the  sum 
of  $12,000,000  at  the  time  of  the  commencement  of  this  suit.  The 
trial  court  said:  'If,  however,  complainant's  franchises  were  worth 
S7,781,000  in  1884,  and  its  tangible  property,  at  the  same  time,  was 
appraised  (as  appears  in  evidence)  at  S30,000,000  (in  round  figures), 
then  since  complainant's  business  (in  sales  volume)  has,  in  twentj-- 
three  years,  almost  quadrupled,  and  its  tangible  assets  grown  to 
847,000,000,  it  appears  to  me  that  a  fair  method  of  fixing  value  of  the 
franchises  in  1905  is  to  assume  the  same  growth  in  value  for  the  fran- 
chise as  is  demonstrated  by  the  evidence  in  the  case  of  tangible  property. 
If,  therefore,  the  franchise  valuation  of  1SS4  was  proportioned  to  per- 
sonalty and  realty  of  830,000,000,  a  franchise  valuation  proportioned 
to  847,000,000  in  1905  would  be  over  812,000,000.    This,  I  think,  a 


CONSOLIDATED  GAS  COMPANY  CASE  273 

logical  result  from  the  assumption  I  am  compelled  to  start  with,  i.e. 
that  franchises  have  a  scpai'al)k>  and  ind(>pcndent  value.  But  there 
is,  however,  no  method  of  valuing  franchises,  except  by  a  consideration 
of  earnings.  Earnings  must  be  proportioned  to  assets;  and  both 
kinds  of  assets,  tangible  and  intangible,  must  stand  upon  the  same 
plane  of  valuation.  Having,  therefore,  a  measure  of  growth  of  tangible 
assets  from  1884  to  1905,  the  franchise  assets  must  be  assumed  to  have 
grown  in  the  same  proportion.  I  find  that  the  value  of  complainant's 
franchises  at  the  date  of  inquiry  was  not  less  than  $12,000,000,  making 
a  total  valuation  of  $59,000,000,  upon  which  the  probable  return  is 
$3,030,000,  or  very  considerably  less  than  6  per  cent.'  The  judge 
stated  his  own  views  as  opposed  to  including  these  franchises  in  the 
property  upon  the  value  of  which  a  return  is  to  be  calculated  in  fixing 
the  amount  of  rates,  but  held  that  he  was  bound  by  decided  cases  to 
hold  against  his  personal  views. 

"  We  are  not  prepared  to  hold  with  the  court  below  as  to  the  increased 
value  which  it  attributes  to  the  franchises.  It  is  not  only  too  much 
a  matter  of  pure  speculation,  but  we  think  it  is  also  opposed  to  the  prin- 
ciple upon  which  such  valuation  should  be  made.  This  corporation 
is  one  of  that  class  which  is  subject  to  regulation  by  the  legislature  in 
the  matter  of  rates,  provided  they  are  not  made  so  low^  as  to  be  confisca- 
tory. The  franchises  granted  the  various  companies  and  held  by  com- 
plainant consisted  in  the  right  to  open  the  streets  of  the  city  and 
lay  down  mains  and  use  them  to  supply  gas,  subject  to  the  legislative 
right  to  so  regulate  the  price  for  the  gas  as  to  permit  not  more  than 
a  fair  return  (regard  being  had  to  the  risk  of  the  business),  upon  the 
reasonable  value  of  the  property  at  the  time  it  is  being  used  for  the 
public. 

"  The  evidence  shows  that  from  their  creation,  down  to  the  consolida- 
tion in  1884,  these  companies  had  been  free  from  legislative  regulation 
upon  the  amount  of  the  rates  to  be  charged  for  gas.  They  had  been 
most  prosperous  and  had  divided  very  large  earnings  in  the  shape  of 
dividends  to  their  stockholders,  —  dividends  which  are  characterized 
by  the  Senate  committee,  appointed  in  1885  to  investigate  the  fact 
surrounding  the  consolidation,  as  enormous.  The  report  of  that 
committee  shows  that  several  of  the  companies  had  averaged,  from 
their  creation,  dividends  over  16  per  cent,  and  the  six  companies  in  the 
year  1884  paid  a  dividend  upon  capital  which  had  been  increased  by 
earnings,  as  in  the  case  of  the  Manhattan  and  the  New  York,  of  18  per 
cent ;  and,  had  it  been  upon  the  money  actually  paid  in,  it  would  have 
been  nearly  25  per  cent. 

"The  committee  also  said  in  the  same  report  that  these  'franchises 
were  in  force  November  10,1884,  the  time  of  the  consolidation,  and  the 
money  invested  in  them  was  earning  the  same  enormous  dividends. 
So  far  as  the  evidence  shows,  there  was  nothing  in  the  condition  of 


274  ENGINEERING  VALUATION 

affairs  on  the  10th  of  November  to  indicate  that  these  franchises  would 
not  be  as  valuable  for  the  next  twentj^  j^ears  as  they  had  been  in  the 
past.  There  were  gas  companies  enough  in  the  city  with  a  capacity 
capable  of  supj)lying  the  demands  for  the  next  twenty  years.  A  law 
was  on  our  statute  books  that  virtually  prohibited  the  laying  of  any 
more  gas  pipes  in  the  streets.  The  gas  companies  had  an  agreement 
among  themselves,  fixing  the  price  of  gas  at  a  figure  that  paid  these 
dividends.  The  people  were  paying  this  price,  as  they  had  in  the  past, 
without  objection  or  protest.  This  price  may  have  been  too  high,  and 
the  dividends  wx^re  excessive,  but  thej^  were  not  illegal,  and  the  valua- 
tion of  the  franchises  computed  upon  these  dividends  and  that  state  of 
facts  camiot  be  called  a  violation  of  a  law  that  expressly  authorized 
it  to  be  done,  unless  such  valuation  was  too  high.' 

"  The  committee,  upon  these  facts,  were  of  opinion  that  the  valuation 
of  87,781,000  for  the  franchises  was  not  more  than  their  fair  aggregate 
value. 

"Assuming,  as  the  committee  did,  that  the  company  would  be  per- 
mitted to  charge  the  same  prices  in  the  future  which  in  the  past  had  re- 
sulted in  these  'enormous '  or  '  excessive '  dividends,  it  need  not  be  matter 
of  surprise  that  a  franchise  by  means  of  which  such  dividends  had  been 
possible  was  not  regarded  as  overvalued  at  the  sum  stated  in  1884. 

"  We  think  that,  under  the  above  facts,  the  courts  ought  to  accept  the 
valuation  of  the  franchises  fixed  and  agreed  upon  under  the  act  of  1884 
as  conclusive  at  that  time.  The  valuation  was  provided  for  in  the  act, 
which  was  followed  by  the  companies,  and  the  agreement  regarding  it 
has  been  always  recognized  as  valid,  and  the  stock  has  been  largely 
dealt  in  for  more  than  twenty  years  past  on  the  basis  of  the  validity 
of  the  valuation  and  of  the  stock  issued  by  the  company. 

"  But,  although  the  state  ought,  for  these  reasons,  to  be  bound  to  recog- 
nize the  value  agreed  upon  in  1884  as  part  of  the  property  upon  which 
a  reasonable  return  can  be  demanded,  we  do  not  think  an  increase  in 
that  valuation  ought  to  be  allowed  upon  the  theory  suggested  by  the 
court  below.  Because  the  amount  of  gas  supplied  has  increased  to  the 
extent  stated,  and  the  other  and  tangible  property  of  the  corporations 
has  increased  so  largely  in  value,  is  not,  as  it  seems  to  us,  anj-^  reason  for 
attributing  a  like  proportional  increase  in  the  value  of  the  franchise. 
Real  estate  may  have  increased  in  value  very  largely,  as  also  the  per- 
sonal property,  without  any  necessary  increase  in  the  value  of  the 
franchise.  Its  past  value  was  founded  upon  the  opportunity  of  ob- 
taining these  enormous  and  excessive  returns  upon  the  property  of  the 
comi)any,  without  legislative  interference  with  the  price  for  the  supply 
of  gas ;  but  that  immunity  for  the  future  was,  of  course,  uncertain ; 
and  the  moment  it  ceased,  and  the  legislature  reduced  the  earnings  to 
a  reasonable  sum,  the  great  value  of  the  franchise  would  be  at  once 
and  unfavorably  affected,  but  how  much  so  it  is  not  possible  for  us 


CONSOLIDATED  GAS  COMPANY  CASE  275 

now  to  see.  The  value  would  most  certainly  not  increase.  The 
question  of  the  regulation  of  rates  did,  from  time  to  time  thereafter, 
arise  in  the  legislature,  and  finally  culminated  in  these  acts  which  were 
in  existence  when  the  court  below  found  this  increased  value  of  the  fran- 
chises.    We  cannot,  in  any  view  of  the  case,  concur  in  that  finding. 

"  This  increase  in  value  did,  however,  form  part  of  the  sum  upon  which 
the  court  below  held  the  complainant  was  entitled  to  a  return.  That 
court  found  the  value  of  the  tangible  assets  actuall}^  employed  at  the 
time  of  the  commencement  of  this  suit  in  the  business  of  supplying  gas 
by  the  complainant  to  be  $47,831,435,  to  which  it  added  the  $12,000,000 
as  the  value  of  the  franchises  as  found  by  it,  making  the  total  of 
$59,831,435,  upon  which  it  held  that  the  company  was  entitled  to  a 
return  of  6  per  cent,  being  $3,589,886.10.  It  also  found  its  total  net 
income  for  the  year  1905  amounted  to  $5,881,192.45,  almost  10  per  cent 
upon  the  sum  above  named.  Altering  the  finding  of  the  court  so  far 
only  as  to  place  the  value  of  the  franchises  at  the  time  agreed  ujion 
in  1884,  $7,781,000,  the  total  value  upon  that  basis  of  the  property 
employed  b.y  the  company  would  be  $55,612,435,  upon  which  6  per  cent 
would  be  $3,336,746.10,  while  the  sum  estimated  as  the  return  on  80- 
cent  gas  would  have  been  $3,024,592.14,  which  is  nearly  5^  per  cent  on 
the  above  total  of  $55,612,435. 

"  What  has  been  said  herein  regarding  the  value  of  the  franchises  in 
this  case  has  been  necessarily  founded  upon  its  own  peculiar  facts, 
and  the  decision  thereon  can  form  no  precedent  in  regard  to  the  valua- 
tion of  franchises  generally,  where  the  facts  are  not  similar  to  those  in 
the  case  before  us.  We  simply  accept  the  sum  named  as  the  value 
under  the  circumstances  stated. 

"  There  is  no  particular  rate  of  compensation  which  must,  in  all  cases 
and  in  all  parts  of  the  country,  be  regarded  as  sufficient  for  capital 
invested  in  business  enterprises.  Such  compensation  must  depend 
greatly  upon  circumstances  and  locality  ;  among  other  things,  the  amount 
of  risk  in  the  business  is  a  most  important  factor,  as  well  as  the  locality 
where  the  business  is  conducted,  and  the  rate  expected  and  usually 
realized  there  upon  investments  of  a  somewhat  similar  nature  with 
regard  to  the  risk  attending  them.  There  may  be  other  matters  which, 
in  some  cases,  might  also  be  properly  taken  into  account  in  determin- 
ing the  rate  which  an  investor  might  properly  expect  or  hope  to  receive 
and  which  he  would  be  entitled  to  without  legislative  interference. 
The  less  risk,  the  less  right  to  any  unusual  returns  upon  the  invest- 
ments. One  who  invests  his  money  in  a  business  of  a  somewhat  hazard- 
ous character  is  very  properly  held  to  have  the  right  to  a  larger  return, 
without  legislative  interference,  than  can  be  obtained  from  an  invest- 
ment in  government  bonds  or  other  perfectly  safe  security.  The  man 
that  invested  in  gas  stock  in  1823  had  a  right  to  look  for  and  obtain,  if 
possible,  a  much  greater  rate  upon  his  investment  than  he  who  invested 


276  ENGINEERING  VALUATION 

in  such  property  in  the  city  of  New  York  years  after  the  risk  and  danger 
invoh-ed  had  been  ahiiost  entirely  eUminated. 

"  In  an  investment  in  a  gas  company,  such  as  complainant's,  the  risk 
is  reduced  ahnost  to  a  minimum.  It  is  a  corporation  which,  in  fact, 
as  the  court  below  remarks,  monopolizes  the  gas  service  of  the  largest 
city  in  America,  and  is  secure  against  competition  under  the  circum- 
stances in  wliich  it  is  placed,  because  it  is  a  proposition  almost  unthink- 
able that  the  city  of  New  York  would,  for  purposes  of  making  competi- 
tion, permit  the  streets  of  the  city  to  be  again  torn  up  in  order  to  allow 
the  mains  of  another  company  to  be  laid  all  through  them  to  supply 
gas  which  the  present  company  can  adequately  supply.  And,  so  far  as 
it  is  given  us  to  look  into  the  future,  it  seems  as  certain  as  anything 
of  such  a  nature  can  be,  that  the  demand  for  gas  will  increase,  and,  at 
the  reduced  price,  increase  to  a  considerable  extent.  An  interest  in 
such  a  business  is  as  near  a  safe  and  secure  investment  as  can  be  imag- 
ined with  regard  to  any  private  manufacturing  business,  although  it 
is  recognized  at  the  same  time  that  there  is  a  possible  element  of  risk, 
even  in  such  a  business.  The  court  below  regarded  it  as  the  most 
favorably  situated  gas  business  in  America,  and  added  that  all  gas 
business  is  inherentl}'  subject  to  many  of  the  vicissitudes  of  manufac- 
turmg.  Under  the  circumstances,  the  court  held  that  a  rate  which 
would  permit  a  return  of  6  per  cent  would  be  enough  to  avoid  the  charge 
of  confiscation,  and  for  the  reason  that  a  return  of  such  an  amount  was 
the  return  ordinarily  sought  and  obtained  on  investments  of  that 
degree  of  safety  in  the  city  of  New  York, 

"Taking  all  facts  into  consideration,  we  concur  witli  the  court  below 
on  this  question,  and  think  complainant  is  entitled  to  6  per  cent  on  the 
fair  value  of  its  property  devoted  to  the  public  use.  But,  assuming 
that  the  company  is  entitled  to  6  per  cent  upon  the  value  of  its  property 
actually  used  for  the  public,  the  total  fixed  by  the  court  below  is,  as 
we  have  seen,  much  too  large.  We  must  first  strike  out  the  increased 
value  of  the  franchises  asserted  by  the  court  over  the  amount  agreed 
upon  in  1884,  when  the  company  was  consolidated.  We  also  find  that 
the  total  value  of  the  tangible  property  is  made  up  of  several  items, 
two  of  which  are  — 

Real  Estate 811,985,435 

Plants i?15,000,000 

"  Both  depend  largely  upon  the  opinions  of  expert  witnesses  as  to  the 
value  of  that  kind  of  property.  Where  a  large  amount  of  the  total 
value  of  a  mass  of  different  properties  consists  in  the  value  of  real 
estate,  which  is  only  ascertained  by  the  varying  opinions  of  expert 
witnesses,  and  where  the  opinions  of  the  plaintiffs'  witnesses  differ 
quite  radically  from  those  of  the  defendants,  it  is  apparent  that  the 
total  value  must  necessarily  be  more  or  less  in  doubt.  It,  in  other 
words,  becomes  matter  of  speculation  or  conjecture  to  a  great  extent. 


CONSOLIDATED  GAS  COMPANY  CASE  277 

It  may  be,  as  already  suggested,  that,  in  many  cases,  the  rates  objected 
to  might  be  so  low  that  there  could  be  no  reasonable  doubt  of  their 
inadequacy  upon  any  fair  estimate  of  the  value  of  the  property.  In 
such  event  the  enforcement  of  the  rates  should  be  enjoined  even  in  a  case 
where  the  value  of  the  property  depends  upon  the  value  to  be  assigned 
to  real  estate  by  the  evidence  of  experts.  But  there  may  be  other  cases 
where  the  evidence  as  to  the  probable  result  of  the  rates  in  controversy 
would  show  they  were  so  nearly  adequate  that  nothing  but  a  practical 
test  could  satisfy  the  doubt  as  to  their  sufficiency. 

"  In  this  case  a  slight  reduction  in  the  estimated  value  of  the  real 
estate,  plants,  and  mains,  as  given  by  the  witnesses  for  complainant, 
would  give  a  6  per  cent  return  upon  the  total  value  of  the  property, 
as  above  stated.  And  again,  increased  consumption  at  the  lower  rate 
might  result  in  increased  earnings,  as  the  cost  of  furnishing  the  gas 
would  not  increase  in  proportion  to  the  increased  amount  of  gas  fur- 
nished. 

"The  elevated  railroads  in  New  York,  when  first  built,  charged  10 
cents  for  each  passenger ;  but,  when  the  rate  was  reduced  to  5  cents, 
it  is  common  knowledge  that  their  receipts  were  not  cut  in  two,  but 
that,  from  increased  patronage,  the  earnings  increased  from  year  to 
year,  and  soon  surpassed  the  highest  sum  ever  received  upon  the  10-cent 
rate. 

"  Of  course,  there  is  always  a  point  below  which  a  rate  could  not  be 
reduced,  and,  at  the  same  time,  permit  the  proper  return  on  the  value 
of  the  property ;  but  it  is  equally  true  that  a  reduction  in  rates  will 
not  always  reduce  the  net  earnings,  but,  on  the  contrary,  may  increase 
them.  The  question  of  how  much  an  increased  consumption  under  a 
less  rate  will  increase  the  earnings  of  comi^lainant,  if  at  all,  at  a  cost 
not  proportioned  to  the  former  cost,  can  be  answered  only  by  a  practical 
test.  In  such  a  case  as  this,  where  the  other  data  upon  which  the 
computation  of  the  rate  of  return  must  be  based  are,  from  the  evidence, 
so  uncertain,  and  where  the  margin  between  possflole  confiscation  and 
valid  regulation  is  so  narrow,  we  cannot  say  there  is  no  fair  or  just  doubt 
about  the  truth  of  the  allegation  that  the  rates  are  insufficient. 

"  The  complainant  also  contends  that  the  state,  having  taxed  it  upon 
its  franchises,  cannot  be  heard  to  deny  their  existence  or  their  value  as 
taxed. 

"  The  fact  that  the  state  has  taxed  the  company  upon  its  franchises 
at  a  greater  value  than  is  awarded  them  here  is  not  material.  Those 
taxes,  even  if  founded  upon  an  erroneous  valuation,  were  properly 
treated  by  the  company  as  part  of  its  operating  expenses,  to  be  paid 
out  of  its  earnings  before  the  net  amount  could  be  arrived  at  applical)le 
to  dividends,  and,  if  such  latter  sums  were  not  sufficient  to  pernnt  the 
proper  return  on  the  property  used  by  the  company  for  the  public, 
then  the  rate  would  be  inadequate.     The  future  assessment  of  the  value 


278  EXGIXEERIXG  VALUATION 

of  the  franchises,  it  is  presumed,  will  be  much  lessened  if  it  is  seen  that 
the  great  profits  upon  which  that  value  was  based  are  largely  reduced 
bj^  legislative  action.  In  that  way  the  consumer  will  l)e  benefited  by 
paying  a  reduced  sum  (although  indirectly)  for  taxes. 

"  We  arc  also  of  opinion  that  it  is  not  a  case  for  a  valuation  of  'good 
will.'  The  master  combined  the  franchise  value  with  that  of  good  will 
and  estimated  the  total  value  at  S20,000,000. 

"  The  complainant  has  a  monopoly  in  fact,  and  a  consumer  must 
take  gas  from  it  or  go  without.  He  will  resort  to  the  'old  stand,' 
because  he  cannot  get  gas  anywhere  else.  The  court  below  excluded 
that  item,  and  we  concur  in  that  action. 

"  And  we  concur  with  the  court  below  in  holding  that  the  value  of  the 
property  is  to  be  determined  as  of  the  time  when  the  inquiry  is  made 
regarding  the  rates.  If  the  property  which  legally  enters  into  the 
consideration  of  the  question  of  rates  has  increased  in  value  since  it 
was  acquired,  the  company  is  entitled  to  the  benefit  of  such  increase. 
This  is,  at  any  rate,  the  general  rule.  We  do  not  say  there  may  not 
possibly  be  an  exception  to  it  where  the  property  may  have  increased 
so  enormously  in  value  as  to  render  a  rate  permitting  a  reasonable 
return  upon  such  increased  value  unjust  to  the  public.  How  such 
facts  should  be  treated  is  not  a  question  now  before  us,  as  this  case 
does  not  present  it.  We  refer  to  the  matter  only  for  the  purpose  of 
stating  that  the  decision  herein  does  not  prevent  an  inquiry  into  the 
question  when,  if  ever,  it  should  be  necessarily  presented. 

"  The  matter  of  the  increased  cost  of  the  gas,  resulting  from  the  pro- 
visions of  the  acts  as  to  making  the  gas  equal  to  twenty-two  candle 
power,  is  also  alleged  as  a  reason  for  inadequacy  of  rate. 

"  It  appears  that  the  average  candle  power  actually  produced  in  the 
first  six  months  of  the  year  1905  was  twenty-two,  while  but  twenty 
candle  power  was  exacted  by  law,  and,  for  the  last  six  months  of  that 
y(!ar,  while  twenty-two  candle  power  was  exacted,  the  average  amount 
was  24.19.  This  expense  was  included  in  the  operating  expense  of  that 
year,  which  resulted  in  the  net  earnings  above  mentioned,  while  the 
company  was  complying  with  the  requirements  of  the  act  in  this 
particular. 

"  It  is  unnecessary,  therefore,  to  further  inciuire  as  to  the  additional 
expense  caused  by  this  requirement. 

"  Again,  it  has  been  asserted  that  the  laws  are  unconstitutional  be- 
cause of  the  provision  as  to  pressure,  and  also  by  reason  of  the  penal- 
ties which  a  violation  of  the  acts  may  render  a  corporation  liable  to. 

"  The  acts  provide  that  the  pressure  of  the  gas  in  the  service  mains  at 
any  distance  from  the  place  of  manufacture  shall  not  be  less  than  1 
inch  nor  more  than  2|  inches. 

"  The  evidence  shows  that,  to  put  a  pressure  such  as  is  demanded  by 
the  acts  upon  the  mains  and  otlier  service  pipes  in  their  present  condition 


I 
I 


CONSOLIDATED  GAS  COMPANY  CASE  279 

would  be  to  run  a  great  risk  of  explosion,  and  consequent  disaster. 
Before  compliance  with  this  provision  would  be  safe,  the  mains  and 
other  pipes  would  have  to  be  strengthened  throughout  their  whole 
extent,  and  at  an  expenditure  of  many  millions  of  dollars,  from  which 
no  return  could  be  obtaincnl  at  the  rates  provided  in  the  acts.  This 
would  take  from  the  complainant  the  ability  to  secure  the  return  to 
which  it  is  entitled  upon  its  property,  used  for  supplying  gas,  and 
the  provision  as  to  the  amount  of  pressure  is  therefore  void.  This 
particular  duty  imposed  by  the  acts  is,  however,  clearly  separable  from 
the  enactments  as  to  rates,  and  we  have  no  doubt  that  the  remainder 
of  the  statute  would  have  been  enacted,  even  with  that  provision 
omitted. 

"  The  obligation  would  remain  upon  the  company  to  have  a  pressure 
sufficient  to  insure  a  light  of  twenty-two  candle  power,  as  provided  in 
the  acts. 

"  We  are  of  the  same  opinion  as  to  the  penalties  provided  for  a  vio- 
lation of  the  acts.  They  are  not  a  necessary  or  inseparable  part  of 
the  acts,  without  which  they  would  not  have  been  passed.  If  these 
provisions  as  to  penalties  have  been  properly  construed  by  the  court 
below,  they  are  undoubtedly  void,  within  the  principle  decided  in  Ex 
parte  Young,  209  U.  S.  123,  52  L.  ed.  714,  13  L.R.A.  (N.S.)  932,  28  Sup. 
Ct.  Rep.  441,  and  the  cases  there  cited,  because  so  enormous  and 
overwhelming  in  their  amount. 

"  When  the  objectionable  part  of  a  statute  is  eliminated,  if  the  balance 
is  valid  and  capable  of  being  carried  out,  and  if  the  court  can  conclude  it 
would  have  been  enacted  if  that  portion  which  is  illegal  had  been 
omitted,  the  remainder  of  the  statute  thus  treated  is  good.  Reagan  v. 
Farmers'  Loan  &  T.  Co.,  154  U.  S.  362,  395,  38  L.  ed.  1014,  1022,  4 
Inters.  Com.  Rep.  560,  14  Sup.  Ct.  Rep.  1047 ;  Berea  College  v.  Ken- 
tucky, 211  U.  S.  45-54,  a7ite,  33,  29  Sup.  Ct.  Rep.  33.  This  is  a  familiar 
principle. 

"  Lastly,  it  is  objected  that  there  is  an  illegal  discrimination  as  between 
the  city  and  the  consumers  individually.  We  see  no  discrimination 
which  is  illegal  or  for  which  good  reasons  could  not  be  given.  But 
neither  the  city  nor  the  consumers  are  finding  any  fault  with  it,  and 
the  only  interest  of  the  complainant  in  the  question  is  to  find  out  whether 
by  the  reduced  price  to  the  city,  the  complainant  is,  upon  the  whole, 
unable  to  realize  a  return  sufficient  to  comply  with  what  it  has  the  right 
to  demand.  What  we  have  already  said  applies  to  the  facts  now  in 
question. 

"  We  cannot  see,  from  the  whole  evidence,  that  the  price  fixed  for  gas 
supplied  to  the  city  by  wholesale,  so  to  speak,  would  so  reduce  the  profits 
from  the  total  of  the  gas  supplied  as  to  thereby  render  such  total 
profits  insufficient  as  a  return  upon  the  property  used  by  the  com- 
plainant.    So  long  as  the  total  is  enough  to  furnish  such  return,  it  is  not 


280  ENGINEERING  VALUATION 

important  that,  with  relation  to  some  customers,  the  price  is  not  enough. 
Minneapolis  St.  L.  R.  Co.  v.  Minnesota,  186  U.  S.  257,  46  L.  ed.  1151, 
22  Sup.  Ct.  Rep.  900 ;  Atlantic  Coast  Line  R.  Co.  v.  North  Carolina 
Corp.  Commission,  206  U.  S.  1,  51  L.  ed.  933,  27  Sup.  Ct.  Rep.  585. 

"  Upon  a  careful  consideration  of  the  case  before  us  we  are  of  opinion 
that  the  complainant  has  failed  to  sustain  the  burden  cast  upon  it  of 
showing  beyond  any  just  or  fair  doubt  that  the  acts  of  the  legislature 
of  the  state  of  New  York  are  in  fact  confiscatory. 

"  It  may  possibly  be,  however,  that  a  practical  experience  of  the  effect 
of  the  acts  by  actual  operation  under  them  might  prevent  the  com- 
plainant from  obtaining  a  fair  return,  as  already  described,  and,  in  that 
event,  complainant  ou^it  to  have  the  opportunity  of  again  presenting 
its  case  to  the  court.  To  that  end  we  reverse  the  decree  with  directions 
to  dismiss  the  bill  without  prejudice ;  and  it  is  so  ordered." 


I 


Knoxville  Water  Co.  Case 

Mayor  and  aldermen  of  the  City  of  Knoxville,  Appt.,  v. 
Knoxville  Water  Company. 

January  4,  1909.     (29  Sup.  Ct.  Rep.  148.) 

Syllabus. 

Courts  —  Supreme    Court  —  Review    of    Facts  —  Findings 

BY  Master 

1.  The  general  rule  respecting  the  conclusiveness  of  a  master's 
findings  of  fact  when  confirmed  by  the  court  will  not  be  applied 
by  the  Federal  Supreme  Court  on  an  appeal  from  a  decree  enjoin- 
ing the  enforcement  of  a  municipal  ordinance  fixing  maximum 
water  rates,  on  the  ground  that  the  ordinance  is  invalid  under 
United  States  Constitution,  14th  Amendment,  as  confiscatory. 

Waters    and    Water    Courses  —  Water    Rates  —  Reason- 
ableness —  Valuation  of  Tangible  Property 

2.  A  deduction  for  depreciation  from  age  and  use  must  be  made 
from  the  estimated  cost  of  reproducing  a  waterworks  plant  when 
determining  the  present  value  of  the  tangible  property  for  the  pur- 
pose of  testing  the  reasonableness  of  the  rates  fixed  by  a  municipal 
ordinance. 

Waters    and    Water    Courses  —  Water    Rates  —  Reason- 
ableness —  Valuation  of  Tangible  Property 

3.  Capitalization  affords  no  guide  to  the  present  value  of  the 
tangible  property  of  a  waterworks  company  which  is  objecting  to 
the  rates  fixed  by  municipal  ordinance  as  confiscatory,  where  sub- 
stantially all  the  common  and  preferred  stock  was  issued  under 
construction  contracts  entered  into  with  persons  who  controlled 
the  corporate  action,  and  was  greatly  in  excess  of  the  true  value 
of  the  property  furnished  under  the  contracts. 

Waters    and    Water    Courses  —  Water     Rates  —  Reason- 
ableness —  Income 

4.  The  absence  of  any  requirement  in  a  municipal  ordinance 
fixing  water  rates,  that  the  waterworks  company  shall  continue  to 

281 


282  EXGIXEERIXG   VALUATION 

give  a  discount  for  prompt  payment,  must  be  taken  into  consider- 
ation when  determining,  for  the  purpose  of  testing  the  reason- 
ableness of  such  rates,  the  reduction  in  the  company's  income 
which  will  be  produced  by  the  enforcement  of  such  ordinance. 

Waters    and    Water    Courses  —  Water    Rates  —  Reason- 
ableness —  Valuation 

5.  Depreciation  represented  by  the  destruction  or  obsolescence 
of  parts  of  the  original  plant  and  by  impairment  in  value  of  those 
parts  which  remain  in  existence  and  continue  in  use  cannot  be 
added  to  the  present  value  of  the  surviving  parts  when  determin- 
ing the  value  of  the  tangible  property  of  a  waterworks  company 
for  the  purpose  of  testing  the  reasonableness  of  the  rates  fixed 
by  municipal  ordinance. 

Waters    and    Water    Courses  —  Water    Rates  —  Reason- 
ableness —  Income 

6.  The  net  income  of  a  waterworks  company  during  the  years 
succeeding  the  passage  of  a  municipal  ordinance  fixing  maximum 
water  rates,  which  has  never  been  enforced,  should  be  considered 
by  the  courts  in  determining  the  reasonableness  of  such  rates. 

Waters  and  Water  Courses  —  Fixing  of  Rates  —  Enjoining 

Enforcement 

7.  The  courts  should  not  enjoin  the  enforcement  of  a  municipal 
ordinance  fixing  maximum  water  rates  on  the  ground  that  such 
ordinance  is  invalid  under  United  States  Constitution,  14th  Amend- 
ment, as  confiscatory,  unless  the  confiscation  is  clearly  apparent. 

[No.  17] 
Argued  April  28,  1908.     Decided  January  4,  1909. 

Appeal  from  the  Circuit  Court  of  the  United  States  for  the 
Eastern  District  of  Tennessee  to  review  a  decree  enjoining  the 
enforcement  of  a  municipal  ordinance  fixing  maximum  water 
rates.  Reversed  and  remanded  with  directions  to  dismiss  the  bill 
without  prejudice. 

The  facts  are  stated  in  the  opinion. 

Messrs.  0.  W.  Pickle,  W.  R.  Turner,  W.  T.  Kennerly  and 
J.  Pike  Powers,  Jr.,  for  appellant. 


KNOXVILLE  WATER  COMPANY  CASE  283 

Messrs.  Joshua  W.  Caldwell,  R.  E.  L.  Mountcastle,  Charles 
T.  Gates,  Jr.,  and  S.  G.  Shields  for  appellee. 

Mr.  Justice  Moody  delivered  the  opinion  of  the  court: 

This  is  an  appeal  by  the  city  of  Knoxvillc  from  a  decree  of  the  circuit 
court  of  the  United  States  for  the  eastern  district  of  Tennessee.  The 
appellee  is  a  public  service  corporation,  chartered  for,  and  engaged  in, 
the  business  of  supplying  that  city  and  its  inhabitants  with  water  for 
domestic  and  other  uses.  The  cause  in  which  the  decree  was  rendered 
is  a  suit  in  equity  which  was  brought  by  the  company  on  December  7, 
1901,  against  the  city  to  restrain  the  enforcement  of  a  city  ordinance 
fixing  in  detail  the  maximum  rates  to  be  charged  by  the  company. 
This  ordinance  was  enacted  on  March  30,  1901.  The  bill  contained 
many  allegations,  which  have  become  immaterial  by  the  decision  of 
this  court  in  Knoxville  Water  Co.  v.  Knoxville,  189  U.S.  434,  47  L.  ed. 
887,  23  Sup.  Ct.  Rep.  531,  in  which  the  validity  of  the  ordinance  was 
sustained,  except  so  far  as  it  might  confiscate  the  property  of  the  com- 
pany by  fixing  rates  so  low  as  to  have  that  effect.  The  latter  conten- 
tion alone  was  left  open  to  the  company,  and  to  it  the  remainder  of  the 
bill  is  mainly  directed.  The  allegations  in  that  regard  are,  that  the 
rates  fixed  by  the  ordinance  were  so  low  that  they  denied  to  the  com- 
pany a  reasonable  return  upon  the  property  employed  in  the  business, 
and  thereby  took  it  for  public  use  without  compensation,  in  violation 
of  the  14th  Amendment  to  the  Constitution  of  the  United  States. 
After  answer  by  the  respondent  and  replication  by  the  complainant 
the  cause  was  referred  to  a  special  master,  whose  report  was  confirmed  by 
the  court.  The  master  found  and  reported  that  the  value  of  the  plant 
and  property  employed  in  the  business  at  the  date  of  the  passage  of 
the  ordinance  was  1608,427.95 ;  that  the  gross  income  from  the  com- 
pany's business  was  $88,481.39,  and  that  the  operating  expenses  were 
$34,750.91.  The  figures  of  income  and  expense  are  those  of  the  fiscal 
year  ending  March  31,  1901,  and  the  valuation  was  made  as  of  that 
date.  The  master  found  and  reported  that  the  diminution  of  income 
which  would  have  resulted  from  the  enforcement  of  the  ordinance 
during  the  fiscal  year  was  $17,623.64,  and  that  the  gross  income  would 
have  been  reduced  thereby  to  $70,857.75,  leaving  a  net  income  of 
$36,106.84.  This  net  income  was  less  than  6  per  cent  on  the  valuation. 
In  the  opinion  of  the  master,  8  per  cent,  which  included  2  per  cent  to 
provide  for  depreciation,  was  the  minimum  net  return  which  the  com- 
pany was  entitled  to  earn.  The  judge  of  the  circuit  court,  in  his 
opinion  confirming  the  master's  report,  adopted  the  master's  valua- 
tion of  the  whole  plant  and  property  at  $608,427.95  (although  he  held 
that  it  ought  to  be  increased  by  about  $3000),  and  the  master's  finding 
that  the  gross  income  was  $88,481.39;  that  the  expenses  were 
$34,750.91 ;    that  the  effect  of  the  reduction  made  by  the  ordinance 


284  ENGINEERING  VALUATION 

would  be  to  lessen  the  gross  income  by  S17,623.64,  and  that  therefore 
the  net  income  under  the  ordinance  would  be  S3G,  106.84,  or  about  S4U() 
less  than  6  per  cent  on  the  valuation.  Upon  these  assumptions  of  fact 
as  to  its  effect  the  judge  regarded  the  ordinance  as  confiscatory  and 
issued  a  permanent  injunction  against  its  enforcement. 

At  the  threshold  of  the  consideration  of  the  case  the  attitude  of  this 
court  to  the  facts  found  below  should  be  defined.  Here  are  findings 
of  fact  by  a  master,  confirmed  by  the  court.  The  company  contends 
that,  imder  these  circumstances,  the  findings  are  conclusive  in  this 
court,  unless  they  are  without  support  in  the  evidence,  or  were  made 
under  the  influence  of  erroneous  views  of  law.  We  need  not  stop  to 
consider  what  the  effect  of  such  findings  would  be  in  an  ordinary  suit  in 
equity.  The  purpose  of  this  suit  is  to  arrest  the  operation  of  a  law  on 
the  ground  that  it  is  void  and  of  no  effect.  It  happens  that  in  this  par- 
ticular case  it  is  not  an  act  of  the  legislature  that  is  attacked,  but  an 
ordinance  of  a  municipality.  Nevertheless  the  function  of  ratemaking 
is  purely  legislative  in  its  character,  and  this  is  true,  whether  it  is  ex- 
ercised directly  by  the  legislature  itself  or  by  some  subordinate  or  admin- 
istrative body,  to  whom  the  power  of  fixing  rates  in  detail  has  been 
delegated.  The  completed  act  derives  its  authority  from  the  legislature 
and  must  be  regarded  as  an  exercise  of  the  legislative  power.  Prentis 
V.  Southern  R.  Co.  211  U.S.  210,  ante,  67,  29  Sup.  Ct.  Rep.  67;  Hono- 
lulu Rapid  Transit  &  Land  Co.  v.  Hawaii,  211  U.S.  282,  ante,  55, 29  Sup. 
Ct.  Rep.  55.  There  can  be  at  this  day  no  doubt,  on  the  one  hand,  that 
the  courts,  on  constitutional  grounds,  may  exercise  the  power  of  refusing 
to  enforce  legislation,  nor,  on  the  other  hand,  that  power  ought  to  be 
exercised  only  in  the  clearest  cases.  The  constitutional  invalidity  should 
be  manifest,  and  where  that  invalidity  rests  upon  disputed  questions  of 
fact,  the  invalidating  facts  must  be  proved  to  the  satisfaction  of  the 
court.  In  view  of  the  character  of  the  judicial  power  invoked  in  such 
cases  it  is  not  tolerable  that  its  exercise  should  rest  securely  upon  the 
findings  of  a  master,  even  though  they  be  confirmed  by  the  trial  court.. 
The  power  is  best  safeguarded  against  abuse  by  preserving  to  this 
court  complete  freedom  in  dealing  with  the  facts  of  each  case.  Nothing 
less  than  this  is  demanded  by  the  respect  due  from  the  judicial  to  the 
legislative  authority.  It  must  not  be  understood  that  the  findings  of  a 
master,  confirmed  by  the  trial  court,  are  without  weight,  or  that  they 
will  not,  as  a  practical  question,  sometimes  be  regarded  as  conclusive. 
All  that  is  intended  to  be  said  is,  that  in  cases  of  this  character  this 
court  will  not  fetter  its  discretion  or  judgment  by  any  artificial  rules 
as  to  the  weight  of  the  master's  findings,  however  useful  and  well  settled 
these  rules  may  be  in  ordinary  litigation.  We  approach  the  discussion 
of  the  facts  in  this  spirit. 

The  first  fact  essential  to  the  conclusion  of  the  court  below  is  the 
valuation  of  the  property  devoted  to  the  public  uses,  upon  which  the 


KNOXVILLE  WATER  COMPANY  CASE  285 

company  is  entitled  to  earn  a  return.  That  valuation  (SG08,00()) 
must  now  be  considered.  It  was  made  up  by  adding  to  the  appraise- 
ment, in  minute  detail  of  all  the  tangible  property,  the  sum  of  $10,000 
for  "organization,  promotion,  etc.,"  and  $60,000  for  "going  concern." 
The  latter  sum  we  understand  to  be  an  expression  of  the  added  value 
of  the  plant  as  a  whole  over  the  sum  of  the  values  of  its  component 
parts,  which  is  attached  to  it  because  it  is  in  active  and  successful 
operation  and  earning  a  return.  We  express  no  opinion  as  to  the 
propriety  of  including  these  two  items  in  the  valuation  of  the  plant, 
for  the  purpose  for  which  it  is  valued  in  this  case,  but  leave  that 
question  to  be  considered  when  it  necessarily  arises.  We  assume 
without  deciding,  that  these  items  were  properly  added  in  this 
case.  The  value  of  the  tangible  property  found  by  the  master  is,  of 
course,  $608,000  lessened  by  $70,000,  the  value  attributed  to  the  in- 
tangible property,  making  $538,000.  This  valuation  was  determined 
by  the  master  by  ascertaining  what  it  would  cost,  at  the  date  of  the 
ordinance,  to  reproduce  the  existing  plant  as  a  new  plant.  The  cost 
of  reproduction  is  one  way  of  ascertaining  the  present  value  of  a  plant 
like  that  of  a  water  company,  but  that  test  would  lead  to  obviously  in- 
correct results  if  the  cost  of  reproduction  is  not  diminished  by  the 
depreciation  which  has  come  from  age  and  use.  The  company  contends 
that  the  master,  in  fixing  upon  the  valuation  of  the  tangible  property, 
did  make  an  allowance  for  depreciation,  but  we  are  unable  to  agree  to 
this.  The  master  nowhere  says  that  he  made  allowance  for  depre- 
ciation, and  the  language  of  his  report  is  inconsistent  with  such  a  re- 
duction. The  figures  which  he  adopts  are  those  of  a  "fair  contractor's 
price."  The  basis  of  his  calculation  was  the  testimony  of  an  opinion 
witness  called  by  the  company.  That  witness  submitted  a  table  which 
avowedly  showed  the  cost  of  reproduction,  without  allowance  for  de- 
preciation. The  values  testified  to  by  him  were  adopted  by  the  master 
in  the  great  majority  of  cases.  The  witness's  valuation  of  the  tangible 
property  was  somewhat  reduced  by  the  master,  but  the  reductions 
were  not  based  upon  the  theory  of  depreciation,  but  upon  a  difference 
of  opinion  as  to  the  reproduction  cost. 

The  cost  of  reproduction  is  not  always  a  fair  measure  of  the  present 
value  of  a  plant  which  has  been  in  use  for  many  years.  The  items 
composing  the  plant  depreciate  in  value  from  year  to  year  in  a  varying 
degree.  Some  pieces  of  property,  like  real  estate  for  instance,  depreciate 
not  at  all,  and  sometimes,  on  the  other  haud,  appreciate  in  value. 
But  the  reservoirs,  the  mains,  the  service  pipes,  structures  upon  real 
estate,  standpipes,  pumps,  boilers,  meters,  tools  and  appliances  of  every 
kind  begin  to  depreciate  with  more  or  less  rapidity  from  the  moment 
of  their  first  use.  It  is  not  easy  to  fix  at  any  given  time  the  amount 
of  depreciation  of  a  plant  whose  component  parts  are  of  different  ages, 
with  different  expectations  of  life.     But  it  is  clear  that  some  substantial 


286  ENGINEERING  VALUATION 

allowance  for  depreciation  ought  to  have  been  made  in  this  case.  The 
officers  of  the  companj^,  alio  intuitu,  estimated  what  they  called  "in- 
complete depreciation"  of  this  plant  (which  we  understand  to  be  the 
depreciation  of  the  surviving  parts  of  it  still  in  use)  at  $77,000,  which  is 
14  per  cent  of  the  master's  appraisement  of  the  tangil)lc  property.  A 
witness  called  by  the  city  placed  the  reproduction  value  of  the  tangible 
property  at  8363,000,  and  estimated  the  allowance  that  should  be  made 
for  depreciation  at  SI  18,000,  or  32  per  cent.  In  the  view  we  take  of  the 
case  it  is  not  necessary  that  we  should  undertake  the  difficult  task  of 
determining  exactly  how  much  the  master's  valuation  of  the  tangible 
property  ought  to  have  been  diminished  by  the  depreciation  which 
that  property  had  undergone.  It  is  enough  to  say  that  there  should 
have  been  a  considerable  diminution,  sufficient,  at  least,  to  raise  the 
net  income  found  by  the  court  above  6  per  cent  upon  the  whole  valua- 
tion thus  diminished.  If,  for  instance,  the  master's  valuation  should 
be  diminished  by  850,000,  allowed  for  depreciation,  the  net  earnings 
found  b}^  him  would  show  a  return  of  substantially  6.5  per  cent. 

Counsel  for  the  company  urge  rather  faintly  that  the  capitalization 
of  the  companj^  ought  to  have  some  influence  in  the  case  in  determining 
the  valuation  of  the  property.  It  is  a  sufficient  answer  to  this  conten- 
tion that  the  capitalization  is  shown  to  be  considerably  in  excess  of  any 
valuation  testified  to  by  any  witness,  or  which  can  be  arrived  at  by  any 
process  of  reasoning.  The  cause  for  the  large  variation  between  the 
real  value  of  the  property  and  the  capitalization  in  bonds  and  preferred 
and  common  stock  is  apparent  from  the  testimony.  All,  or  sub- 
stantially all,  the  preferred  and  common  stock  was  issued  to  contractors 
for  the  construction  of  the  plant,  and  the  nominal  amount  of  the  stock 
i.ssued  was  greatly  in  excess  of  the  true  value  of  the  property  furnished 
by  the  contracts.  A  single  instance  taken  from  the  testimony  will 
illustrate  this.  At  the  very  start  of  the  enterprise  a  contract  was 
entered  into  for  the  construction  of  a  part  of  the  plant,  which  was  of  a 
value  slightly,  if  at  all,  exceeding  $125,000.  The  price  paid  the  con- 
tractor was  $125,000  in  bonds  and  $200,000  in  common  stock.  Other 
contracts  for  construction  showed  a  like  disproportion  between  value 
furnished  and  nominal  capitalization  received  for  that  value.  It  per- 
haps is  unnecessary  to  say  that  such  contracts  were  made  by  the  com- 
pany with  persons  who,  at  the  time,  by  stock  ownership,  controlled  its 
action.  Bonds  and  preferred  and  common  stock  iissued  under  such  con- 
ditions afford  neither  measure  of,  nor  guide  to,  the  value  of  the  property. 

We  think  that  the  master  and  the  court  erred  in  another  respect, 
which  might  affect  in  an  important  way  the  amount  which  could  have 
Ijcen  realized  under  the  operation  of  the  ordinance.  This  error  consisted 
in  the  manner  of  deducting  the  reductions  necessarily  made  by  the 
ordinance.  The  evidence  in  the  record  is  not  entirely  clear,  though 
after  careful  consideration,  we  think  it  shows  the  following  state  of 


KNOXVILLE  WATER  COMPANY  CASE  287 

facts  :  The  company's  schedule  prescribed  ccn-tain  rates,  which  we  may 
call  the  book  rates,  but  upon  a  large  part  of  them  a  discount  of  5  per 
cent  was  made  if  they  were  prom})tly  paid.  The  consumers  very 
generally  availed  themselves  of  this  discount.  The  discount  rates 
constituted  the  actual  collections,  and  may  be  called  the  actual  rates. 
For  the  fiscal  year  which  was  examined  the  book  rates  amounted,  in 
round  numbers,  to  $93,000,  while  the  actual  rates  amounted,  as  the 
master  found,  to  $88,000.  The  percentage  of  reduction  made  by  the  ordi- 
nance was  computed  to  be  22.88.  Tliis  percentage  was  ascertained  either 
by  comparing  the  book  rates  with  the  ordinance  rates,  or  by  comparing 
the  actual  rates  with  the  ordinance  rates,  still  further  reduced  by  a  5 
per  cent  discount  for  prompt  payment,  which  comes  to  substantially  the 
same  result.  The  fallacy  in  the  process  employed  by  the  master  con- 
sisted in  substance  in  assuming  that  the  ordinance  rates  would  be 
subject  to  a  discount  for  prompt  payment.  The  company,  it  is  true, 
might,  if  it  chose,  allow  such  a  discount  from  the  ordinance  rates,  but 
the  ordinance  required  no  discount  from  the  rates  established  by  it, 
and  the  company,  therefore,  was  bound  to  offer  none.  If  it  stood 
upon  the  letter  of  the  ordinance,  as  it  had  the  right  to  do,  and  exacted 
from  the  consumers  the  full  charges  prescribed  by  the  ordinance,  the 
amount  which  would  have  been  realized  would  have  been  over  $4000 
more  than  that  found  by  the  master,  or  a  net  income  of  not  less  than 
$40,000.  Doubtless,  the  abandonment  of  the  common  method  of  dis- 
count for  prompt  payment  would  deprive  the  company  of  an  efficient 
aid  to  the  quick  collection  of  its  bills,  but,  in  the  case  of  a  prime  necessity 
like  water,  there  are  other  methods  of  enforcing  prompt  payment, 
though  it  is  not  unlikely  that  the  elimination  of  the  discount  rate 
would  add  somewhat  to  the  cost  of  collection,  and  thereby  to  the 
operating  expenses. 

A  brief  recently  filed  by  the  city,  to  which  no  reply  has  been  made, 
seems  to  show  conclusively  that  there  was  still  another  error  in  ascertain- 
ing the  amount  of  reduction  effected  by  the  ordinance.  What  was 
actually  done  was  to  deduct  the  22.88  reduction  from  the  actual  water 
rates  (excluding  hydrant  rentals,  which  were  not  changed) ;  but,  of  these 
actual  water  rates,  $10,000  came  from  territory  outside  of  the  corporate 
limits,  which  was  not  affected  by  the  ordinance.  From  this  $10,000 
no  percentage  should  have  been  deducted.  The  reduction,  therefore, 
was  too  large  by  over  $2000.  If  this  correction  should  be  made,  it 
would  amount  to  nearly  four  tenths  of  one  per  cent  on  the  capitalization. 

We  are  also  of  opinion  that  the  master  and  the  court  erroneously 
excluded  evidence  which  had  an  important  bearing  upon  the  true 
earning  capacity  of  the  company  under  the  ordinance.  A  clear  ap- 
preciation of  this  error  can  be  best  obtained  by  a  comprehensive 
review  of  the  hearing.  The  company's  original  case  was  based 
upon  an  elaborate  analysis  of  the  cost  of  construction.     To  arrive  at 


288  ENGINEERING  VALUATION 

the  present  value  of  the  plant  large  deductions  were  made  on  account 
of  the  de])reciation.  This  depreciation  was  divided  into  complete 
depreciation  and  incomplete  depreciation.  Tlie  complete  depre- 
ciation represented  that  part  of  the  original  plant  which,  through 
destruction  or  obsolescence,  had  actually  perished  as  useful  prop- 
erty. The  incomplete  depreciation  represented  the  impairment  in 
value  of  the  parts  of  the  plant  which  remained  in  existence  and  were 
continued  in  use.  It  was  urgently  contended  that,  in  fixing  upon  the 
value  of  the  plant  upon  which  the  company  was  entitled  to  earn  a 
reasonable  return,  the  amounts  of  complete  and  incomplete  depre- 
ciation should  be  added  to  the  present  value  of  the  surviving  parts.  The 
court  refused  to  approve  this  method,  and  we  think  properly  refused. 
A  watef  plant,  with  all  its  additions,  begins  to  depreciate  in  value  from 
the  moment  of  its  use.  Before  coming  to  the  question  of  profit  at  all 
the  company  is  entitled  to  earn  a  sufficient  sum  annuallj''  to  provide 
not  only  for  current  repairs,  but  for  making  good  the  depreciation 
and  replacing  the  parts  of  the  property  when  thej''  come  to  the  end  of 
their  life.  The  company  is  not  bound  to  see  its  property  gradually 
waste,  without  making  provision  out  of  earnings  for  its  replacement. 
It  is  entitled  to  see  that  from  earnings  the  value  of  the  property  invested 
is  kept  unimpaired,  so  that,  at  the  end  of  any  given  term  of  years, 
the  original  investment  remains  as  it  was  at  the  beginning.  It  is  not 
only  the  right  of  the  company  to  make  such  a  provision,  but  it  is 
its  duty  to  its  bond-  and  stockliolders,  and,  in  the  case  of  a  public 
service  corporation,  at  least,  its  plain  duty  to  the  public.  If  a  dif- 
ferent com-sc  were  pursued,  the  only  method  of  providing  for  replace- 
ment of  property  which  has  ceased  to  be  useful  would  be  the  investment 
of  new  capital  and  the  issue  of  new  bonds  or  stocks.  This  course 
would  lead  to  a  constantly  increasing  variance  between  present  value 
and  bond  and  stock  capitalization,  —  a  tendency  which  would  in- 
evitably lead  to  disaster  either  to  the  stockholders  or  to  the  public, 
or  both.  If,  however,  a  companj'^  fails  to  perform  this  plain  duty  and 
to  exact  sufficient  returns  to  keep  the  investment  unimpaired,  whether 
this  is  the  result  of  unwarranted  dividends  upon  over  issues  of  securities, 
or  of  omission  to  exact  proper  i)rices  for  the  output,  the  fault  is  its  own. 
When,  therefore,  a  public  regulation  of  its  prices  comes  under  question, 
the  true  value  of  the  property  then  employed  for  the  purpose  of  earning 
a  return  cannot  be  enhanced  by  a  consideration  of  the  errors  in  manage- 
ment which  have  been  committed  in  the  past. 

After  the  comi)any  had  closed  its  case  th(!  city  undertook  to  determine 
the  present  value  of  the  company's  property''  by  the  plain  method  of 
ascertaining  the  cost  of  reproduction,  diminished  by  depreciation.  In 
its  case  in  rebuttal  the  company  followed  the  same  method,  though  the 
results  differed  largely,  and,  as  we  have  seen,  no  proper  allowance  for 
depreciation  was  made.     In  the  course  of  presenting  its  case  the  city 


KNOXVILLE   WATER  COMPANY  CASE  289 

offered  evidence  of  the  net  income  of  some  years  subsequent  to  the 
passage  of  the  ordinance.  The  case  is  peculiar.  The  company  has 
never  observed  the  ordinance.  The  suit  was  begun  nine  months  after 
its  enactment  and  tried  considerably  later.  In  the  meantime  the 
company's  gross  income  had  largely  increased.  But  the  decision  in 
the  court  below  was  based  solely  on  the  operations  of  the  fiscal  year 
ending  March  31,  1901,  and  tlie  amount  of  net  income  ascertained, 
namely,  $36,000  was  obtained  by  applying  the  reductions  made  by  the 
ordinance  to  the  operations  of  that  fiscal  year.  We  think  it  was  error 
to  confine  the  investigation  to,  and  base  the  judgment  upon,  that 
year  alone.  The  precise  subject  of  inquiry  was,  what  would  be  the 
effect  of  the  ordinance  in  the  future.  The  operations  of  the  preceding 
fiscal  year,  or  of  any  other  past  fiscal  year,  were  valueless  if  the  year 
was  abnormal,  and  were  only  of  significance  so  far  as  they  foretold  the 
future.  If,  as  in  this  case,  sufficient  time  has  passed,  so  that  certainty 
instead  of  prophecy  can  be  obtained,  the  certainty  would  be  prefer- 
able to  the  prophecy.  In  this  case  there  would  be  no  absolute 
certainty,  because  the  ordinance  had  never  been  put  in  opera- 
tion. But  evidence  of  the  operations  of  the  years  succeeding 
to  the  ordinance  is  relevant  and  of  great  importance,  and  by  a  consider- 
ation of  such  evidence  a  much  greater  degree  of  certainty  could  be 
obtained.  Suppose,  by  way  of  illustration,  that  before  bringing  suit 
the  company  had  put  the  ordinance  into  effect  and  had  observed  it  for  a 
number  of  years,  and  the  result  showed  that  a  sufficient  net  income 
had  been  realized,  —  is  it  possible  that  a  suit  then  could  be  brought  and 
the  evidence  confined  to  a  period  prior  to  the  ordinance,  and,  by  a 
process  of  speculation,  the  conclusion  reached  that  the  ordinance 
would  be  confiscatory  ?  Some  evidence  regarding  the  income  of  the 
company  after  the  passage  of  the  ordinance  is  in  the  record,  but  it 
subsequently  was  excluded  from  consideration.  It  showed  an  increase 
of  gross  and  net  earnings,  but  also  an  increase  in  the  property  devoted 
to  the  public  use.  We  are  unable  to  say  what  the  effect  of  the  evidence 
excluded  would  be ;  all  we  can  say  is,  that  the  inquiry  was  unduly  limited 
by  the  exclusion  of  the  evidence  of  the  operation  of  subsequent  years. 

It  follows  from  what  has  been  said  that  the  judgment  of  the  court 
below  cannot  stand.  There  was  error  in  the  appraisement  of  the  present 
value  of  the  plant,  in  the  deduction  of  the  reductions  made  by  the 
ordinance,  and  in  the  exclusion  of  evidence  relating  to  the  operations 
of  the  company  after  the  enactment  of  the  ordinance. 

In  ordinary  cases  full  justice  would  be  done  by  reversing  the  decree 
and  remanding  the  cause  for  further  proceedings  in  the  court  below, 
there  to  undergo  a  new  and  doubtless  prolonged  investigation.  It  is 
more  than  seven  years  since  the  enactment  of  the  ordinance,  and  it 
has  never  been  observed  in  any  respect.  This  litigation  ought  now  to 
be  ended,  if  it  is  possible  to  end  it  with  due  regard  to  the  rights  of 


290  ENGINEERING   VALUATION 

the  contending  parties.  Disregarding  for  the  moment  all  the  errors 
which  were  committed  in  the  court  below,  the  decision  of  this  cause 
may  be  rested  upon  a  broader  ground,  which  is  clearly  indicated  by 
the  previous  judgments  of  this  court.  The  jurisdiction  which  is  in- 
voked here  ought,  as  has  been  said,  to  be  exercised  only  in  the  clearest 
cases.  If  a  company  of  this  kind  chooses  to  decline  to  observe  an 
ordinance  of  this  nature,  and  prefers  rather  to  go  into  court  with  the 
claim  that  the  ordinance  is  unconstitutional,  it  must  be  prepared  to 
show  to  the  satisfaction  of  the  court  that  the  ordinance  would  necessarily 
be  so  confiscatory  in  its  effect  as  to  violate  the  Constitution  of  the  United 
States.  In  Ex  parte  Young,  209  U.S.  123,  52  L.  ed.  714,  13  L.  R.  A. 
(N.S.)  932,  28  Sup.  Ct.  Rep.  441,  the  last  word  of  caution  by  this  court 
was  said  (p.  166) :  "Finally,  it  is  objected  that  the  necessary  result 
of  upholding  this  suit  in  the  circuit  court  will  be  to  draw  to  the  lower 
Federal  courts  a  great  flood  of  litigation  of  this  character,  where  one 
Federal  judge  would  have  it  in  his  power  to  enjoin  proceedings  by 
state  officials  to  enforce  the  legislative  acts  of  the  state,  either  by 
criminal  or  civil  actions.  To  this  it  may  be  answered,  in  the  first 
place,  that  no  injunction  ought  to  be  granted  unless  in  a  case  reasonably 
free  from  doubt.  We  think  such  rule  is,  and  will  be,  followed  by  all 
the  judges  of  the  Federal  courts."  The  same  thought,  in  effect,  was 
expressed  in  San  Diego  Land  &  Town  Co.  v.  National  City,  174  U.S. 
739,  754,  43  L.  ed.  1154,  1160,  19  Sup.  Ct.  Rep.  804,  810:  "Judicial 
interference  should  never  occur  unless  the  case  presents,  clearly  and 
beyond  all  doubt,  such  a  flagrant  attack  upon  the  rights  of  property 
under  the  guise  of  regulations  as  to  compel  the  court  to  say  that 
the  rates  prescribed  will  necessarily  have  the  effect  to  deny  just  com- 
pensation for  private  property  taken  for  the  public  use."  And  in  San 
Diego  Land  &  Town  Co.  v.  Jasper,  189  U.S.  439,  47  L.  ed.  892,  23  Sup. 
Ct.  Rep.  571,  after  repeating  with  approval  this  language,  it  was  said 
(p.  441) :  "In  a  case  like  this  we  do  not  feel  bound  to  reexamine  and 
weigh  all  the  evidence,  although  we  have  done  so,  or  to  proceed  accord- 
ing to  our  independent  opinion  as  to  what  were  proper  rates.  It  is 
enough  if  we  cannot  say  that  it  was  impossible  for  a  fair-mindetl  board 
to  come  to  the  result  which  was  reached." 

It  cannot  be  doubted  that,  in  a  clear  case  of  confiscation,  it  is  the 
right  and  duty  of  the  court  to  annul  the  law.  Thus,  in  Reagan  v.  Far- 
mers' Loan  &  T.  Co.  154  U.S.  362,  38  L.  ed.  1014,  4  Inters.  Com.  Rep. 
560,  14  Sup.  Ct.  Rep.  1047,  where  the  property  was  worth  more  than  its 
capitalization,  and,  upon  the  admitted  facts,  the  rates  prescribed  would 
not  pay  one  half  the  interest  on  the  bonded  debt ;  in  Covington  &  L. 
Turnp.  Road  Co.  v.  Sandford,  164  U.S.  578,  41  L.  ed.  560,  17  Sup. 
Ct.  Rep.  198,  where  the  rates  jirescrilx'd  would  not  even  pay  operating 
expenses;  in  Smyth  v.  Ames,  169  U.S.  466, 42  L.  ed.  819, 18  Sup.  Ct.  Rep. 
418,  where  the  rates  prescribed  left  sub.stantially  nothing  over  operating 


I 


KNOXVILLE  WATER  COMPANY  CASE  291 

expenses  and  cost  of  service ;  and  in  Ex  parte  Young,  supra,  where, 
on  tlie  aspect  of  the  case  which  was  before  the  court,  it  was  not  dis- 
puted that  the  rates  prescribed  were  in  fact  confiscatory,  injunctions 
were  severally  sustained.  But  the  case  before  us  is  not  a  case  of  this 
kind.  Upon  any  aspect  of  the  evidence  the  company  is  certain  to  obtain 
a  substantial  net  revenue  under  the  operation  of  the  ordinance.  The 
net  income,  in  any  event,  would  be  substantially  6  per  cent,  or  4  per 
cent  after  an  allowance  of  2  per  cent  for  depreciation.  See  Stanislaus 
County  V.  San  Joaquin  &  K.  River  Canal  &  Irrig.  Co.,  192  U.S.  201, 
48  L.  ed.  406,  24  Sup.  Ct.  Rep.  241.  We  cannot  know  clearly  that  the 
revenue  would  not  much  exceed  that  return.  We  do  not  feel  called 
upon  to  determine  whether  a  demonstrated  reduction  of  income  to 
that  point  would  or  would  not  amount  to  confiscation.  Where  the 
case  rests,  as  it  does  here,  not  upon  observation  of  the  actual  operation 
under  the  ordinance,  but  upon  speculations  as  to  its  effect,  based  upon 
the  operations  of  a  prior  fiscal  year,  we  will  not  guess  whether  the  sub- 
stantial return  certain  to  be  earned  would  lack  something  of  the  return 
which  would  save  the  effect  of  the  ordinance  from  confiscation.  It  is 
enough  that  the  whole  case  leaves  us  in  grave  doubt.  The  valuation 
of  the  property  was  an  estimate  and  is  greatly  disputed.  The  expense 
account  was  not  agreed  upon.  The  ordinance  had  not  actually  been 
put  into  operation ;  the  inferences  were  based  upon  the  operations  of 
the  preceding  year  ;  and  the  conclusion  of  the  court  below  rested  upon 
that  most  unsatisfactory  evidence,  the  testimony  of  expert  witnesses 
employed  by  the  parties.  The  city  authorities  acted  in  good  faith, 
and  they  tried,  without  success,  to  obtain  from  the  company  a  state- 
ment of  its  property,  capitalization,  and  earnings. 

The  courts,  in  clear  cases,  ought  not  to  hesitate  to  arrest  the  operation 
of  a  confiscatory  law,  but  they  ought  to  refrain  from  interfering  in  cases 
of  any  other  kind.  Regulation  of  public  service  corporations,  which 
perform  their  duties  under  conditions  of  necessary  monopoly,  will  occur 
with  greater  and  greater  frequency  as  time  goes  on.  It  is  a  delicate 
and  dangerous  function,  and  ought  to  be  exercised  with  a  keen  sense 
of  justice  on  the  part  of  the  regulating  body,  met  by  a  frank  disclosure 
on  the  part  of  the  company  to  be  regulated.  The  courts  ought  not  to 
bear  the  whole  burden  of  saving  property  from  confiscation,  though  they 
will  not  be  found  wanting  where  the  proof  is  clear.  The  legislatures  and 
subordinate  bodies,  to  whom  the  legislative  power  has  been  delegated, 
ought  to  do  their  part.  Our  social  system  rests  largely  upon  the  sanctity 
of  private  property ;  and  that  state  or  community  which  seeks  to 
invade  it  will  soon  discover  the  error  in  the  disaster  which  follows.  The 
slight  gain  to  the  consumer,  which  he  would  obtain  from  a  reduction 
in  the  rates  charged  by  public  service  corporations,  is  as  nothing  com- 
pared with  his  share  in  the  ruin  which  would  be  brought  about  by  deny- 
ing to  private  property  its  just  reward,  thus  unsettling  values  and 


292  ENGINEERING  VALUATION 

destro3nng  confidence.  On  the  other  hand,  the  companies  to  be  regu- 
lated will  find  it  to  their  lasting  interest  to  furnish  freely  the  information 
upon  which  a  just  regulation  can  be  based. 

If  hereafter  it  shall  appear,  under  the  actual  operation  of  the  ordi- 
nance, that  the  returns  allowed  by  it  operate  as  a  confiscation  of  property, 
nothing  in  this  judgment  will  prevent  another  application  to  the  courts 
of  the  United  States  or  to  the  courts  of  the  state  of  Tennessee.  But,  as 
the  case  now  stands,  there  is  no  such  certainty  that  the  rates  prescribed 
will  necessarily  have  the  effect  of  denying  to  the  company  such  a  return 
as  would  avoid  confiscation.     For  these  reasons  — 

The  decree  is  reversed  and  the  case  remanded  to  the  court  below  with 
directions  to  dismiss  the  bill  without  prejudice. 


I 


I 


Kansas  City,  Waterworks  Case 

National  Waterworks  Co.  v.  Kansas  City;  Kansas  City 
V.  National  Waterworks  Co. 

(Circuit  Court  of  Appeals,  Eighth  Circuit.     July  2,  1894.) 

Nos.  469,  470.     (62  Fed.  Rep.  853.) 

Municipal    Corporations  —  Contracts  —  Mandatory    Stat- 
ute —  Purchase   of   Works   of   Water   Company 

1.  An  act  empowering  a  city  to  grant  by  ordinance  the  right 
to  erect  and  operate  waterworks  for  the  use  of  the  city,  for  a  period 
of  20  years,  and  to  renew  the  grant  for  another  such  term,  reserving 
the  right  to  acquire  the  works  (Act  Mo.  March  24,  1873),  pro- 
vided that  at  the  expiration  of  the  20  years,  if  the  grant  should 
not  be  renewed,  the  city  should  purchase  the  works,  and,  if  the 
price  could  not  be  fixed  by  agreement,  pay  therefor  the  fair  and 
equitable  value.  The  ordinance  passed  by  the  city  pursuant  to 
the  act,  and  in  effect  the  contract  under  which  the  works  were 
erected  by  a  water  company,  provided  that  on  a  failure  to  re- 
new the  grant  at  the  expiration  of  20  years  the  city  should  then 
be  required  to  purchase  the  works.  Held,  that  the  provision  for 
purchase  was  mandatory,  vital,  and  controlling,  and,  on  the  ex- 
piration of  the  20  years  without  renewal  of  the  grant,  pending  a 
suit  by  the  company  against  the  city  for  performance  of  the  con- 
tract, compelled  a  decree  therein  that  the  company  should  sell  and 
the  city  buy. 

Same  —  Specific  Performance  —  Decree  Responsive  to 
Allegations  and  Prayer 

2.  The  bill  in  such  suit,  filed  by  the  company  nearly  2  years 
before  expiration  of  the  20  years,  alleged  performance  on  the  part 
of  the  company  of  the  terms  of  the  contract,  and  a  threatened 
violation  of  its  obligations  on  the  part  of  the  city,  and  praj'^ed 
a  decree  that  the  contract  was  binding  on  both  parties,  and  that 
the  city  should  perform  it,  so  far  as  executory  and  unperformed. 
Held,  that  after  the  obligation  of  the  city  to  purchase  had  arisen, 
on  the  expiration  of  the  20  years,  this  was  sufficient  foundation 

293 


294  EXGIXEERING  VALUATION 

to  decree  completion  of  the  sale  and  purchase,  although  the  cross 
bill  of  the  city,  and  amendments  thereto,  were  inharmonious, 
and,  if  the  only  affirmative  pleadings,  might  not  have  sustained 
such  a  decree,  and  although  the  company  preferred  not  to  sell, 
but  to  continue  the  franchise,  it  being  then  too  late  for  the  com- 
pany to  oppose  such  decree  as  not  responsive  to  the  pleadings. 

Same  —  Incapacity  to  take  Title 

3.  The  company  could  not  object  to  such  decree  that  the  citj^ 
by  amendments  to  its  charter  and  acts  of  the  legislature  sul)se- 
quent  to  the  contract,  had  become  disabled  to  take  title  to  all 
the  property  making  up  the  waterworks  system,  as,  if  the  com- 
pany was  paid  the  fair  and  equitable  value  of  its  property,  its 
rights  would  cease. 

Same  —  Title  to  Property  on   Expiration   of   Franchise 

4.  The  act  authorizing  such  grant  by  the  city  provided  that 
no  grant  so  made  should  confer  the  right  to  operate  the  water- 
works for  any  period  beyond  20  years,  but  that  it  might  be  renewed 
for  another  term.  Held  that,  on  the  exjDiration  of  the  20  years 
without  renewal  of  the  grant,  the  title  to  the  property  and  the 
right  of  possession  did  not  pass  to  the  city  without  payment,  or 
tender  of  payment,  therefor. 

Same  —  Value  of  Property  after  Expiration  of  Franchise 

5.  The  "fair  and  equitable  value"  of  the  works,  to  be  paid 
therefor  by  the  city  under  such  act,  should  not  1)0  determined  by 
capitalization  of  the  earnings,  — thereby,  in  effect,  valuing  the  fran- 
chise, which  no  longer  existed,  —  nor  should  such  value  be  Hmited 
to  the  cost  of  reproducing  the  plant,  but  allowance  should  be  made 
for  the  additional  value  created  by  the  fact  of  connections  with 
and  supply  of  buildings,  although  the  company  did  not  own  the 
connections. 

Same  —  Damages  for  Defects  in  Construction  of 
Works  —  Estoppel 

6.  The  city's  cross  bill  claimed  damages  on  the  ground  that 
the  waterworks  system  did  not  meet  the  requirements  of  the 
contract  in  efficiency  and  completeness.  Held,  that  the  city,  ^ 
having  for  many  years  recognized  and  accepted  the  system  as 
constructed  in  full  compliance  with  the  contract,  could  not  main- 
tain this  claim. 


KANSAS  CITY,   WATERWORKS  CASE  295 

Appeal  from  the  Circuit  Court  of  tlie  United  States  for  the 
Western  District  of  Missouri. 

This  was  a  suit  by  the  National  Waterworks  Company  of  New 
York  against  Kansas  City,  Mo.,  to  enforce  a  contract  for  the 
construction  and  operation  of  waterworks  for  that  city.  The 
circuit  court  rendered  a  decree  for  performance  of  the  contract. 
Both  parties  appealed. 

The  contract  sought  to  be  enforced  was  created  under  an  ordi- 
nance of  the  defendant  city  passed  pursuant  to  provisions  of  an 
act  of  the  general  assembly  of  Missouri  approved  March  24, 
1873  (Laws  Mo.  1873,  p.  286,  §§  1,  22),  as  follows: 

"Section  1.  The  city  of  Kansas  is  hereby  empowered  to  construct 
waterworks,  to  take  and  convey  into  and  throughout  the  city,  for  the 
use  of  the  same  and  others  therein,  water  of  the  Missouri  river,  Blue 
river  or  Kaw  river,  or  all,  from  any  point  or  points,  and  to  that  end  to 
acquire,  hold,  use,  control  and  dispose  of  real  estate  and  personal 
property  within  and  without  the  corporate  limits  of  the  city,  and  also  in 
the  state  of  Kansas,  necessary  for  laying  pipes,  constructing  reservoirs, 
aqueducts,  appliances  and  means,  and  erecting  buildings  and  macliin- 
ery  proper  and  convenient  for  such  waterworks,  and  for  operating  and 
repairing  the  same;  to  receive,  take,  purify,  store,  conduct  and  dis- 
tribute in  and  throughout  the  city  such  water,  and  in  general  to  do 
all  things  necessary  and  proper  to  carry  this  act  into  effect  and  accom- 
plish the  object  thereof." 

"Sec.  22.  The  city  of  Kansas  is  hereby  empowered  to  grant  to  any 
person  or  persons,  or  any  corporation,  the  right  to  erect  and  operate 
such  waterworks  as  the  first  section  of  this  act  provides  for,  and  to 
accomplish  the  purpose  therein  mentioned  on  such  terms  and  conditions 
as  may  be  agreed  on  in  a  contract  therefor :  provided,  that  such  grant 
shall  only  be  made  by  or  in  all  respects  pursuant  to  ordinance,  which 
shall  not  be  valid  till  the  same  be  approved  by  two  thirds  of  the  qualified 
electors  of  the  city  voting  on  the  matter  at  a  general  election,  or  special 
election  ordered  and  held  for  the  purpose,  when  the  matter  of  the 
approval  of  such  ordinance  shall  be  submitted  to  such  electors;  the 
power  to  order,  hold  and  declare  the  result  of  any  election  requisite  being 
hereby  conferred  on  the  city,  to  be  exercised  by  or  pursuant  to  ordi- 
nance ;  and,  provided  further,  that  no  grant  sn  made  shall  confer  the 
right  to  operate  the  waterworks  for  any  period  beyond  twenty  years 
from  the  time  of  approval  of  the  ordinance  as  aforesaid ;  but  the  grant 
may  be  renewed  by  or  pursuant  to  ordinance,  approved  as  aforesaid, 
during  the  last  of  such  twenty  years,  for  another  term  not  exceeding 
twenty  years,  on  terms  and  conditions  specified  in  the  ordinance  for 
the  renewal  of  the  grant;   and,  provided  further,  that  in  making  such 


296  ENGINEERING  VALUATION 

grant  or  renewing  the  same,  the  city  shall  reserve  to  itself  the  right, 
at  its  option,  and  at  any  time,  to  acquire  and  become  sole  owner  of 
such  waterworks,  including  all  extensions  and  enlargements  thereof,  and 
everything  of  every  nature  and  description  belonging  and  pertaining 
thereto,  on  such  terms  as  may  be  provided  and  agreed  on  between  the 
parties  at  the  time  the  grant  is  made ;  or  if  no  right  is  expressly  reserved, 
or  the  city  cannot,  according  to  any  reservation,  purchase  and  become 
sole  owner  as  aforesaid,  then  the  city  may,  at  any  time,  at  its  option, 
acquire  and  become  sole  owner  of  such  waterworks,  including  all  en- 
largements and  extensions  thereof,  and  everything  of  everj'  nature  and 
description  belonging  or  pertaining  thereto,  on  paying  therefor  the  fair 
and  equitable  value  thereof,  to  be  ascertained,  if  the  parties  cannot 
agree  thereon,  by  the  circuit  court  of  said  county,  on  the  petition  of 
the  city;  the  property  and  subject  of  purchase  to  be  transferred  and 
belong  to  the  city  on  payment  therefor;  and,  provided  further,  that 
at  the  expiration  of  the  twenty  years,  if  the  grant  be  not  renewed, 
the  city  shall  purchase  and  become  sole  owner  of  such  waterworks  as 
aforesaid,  and  pay  therefor  a  price  agreed  upon  by  the  parties  or  as- 
certained as  they  may  agree,  or,  if  the  price  cannot  be  thus  fixed,  then 
the  city  shaU  pay  the  fair  and  equitable  value  of  the  whole  works,  to 
be  ascertained  by  said  court  on  the  petition  of  either  party  filed  for  the 
purpose ;  and,  provided  further,  that  the  city  may  furnish  any  party 
to  whom  such  grant  may  be  made  real  estate  and  right  of  way  for  use 
in  constructing  and  operating  such  waterworks,  according  to  such 
agreements  as  may  be  made  in  the  premises,  and  guarantee  that  the 
works  shall  earn  a  certain  amount  annually,  to  be  specified  in  the  grant, 
and  guarantee,  clear,  over  and  above  current  expenses,  taxes  and  assess- 
ments ;  and  may  secure  by  a  proper  deed  or  agreement  for  the  purpose, 
to  the  party  to  whom  such  grant  is  made,  the  control  and  possession 
of  any  real  estate  and  right  of  any  [way]  condemned  or  acquired  in 
the  exercise  of  the  right  of  eminent  domain,  for  use  during  the  time 
such  party  may  need  the  same  under  any  such  grant." 

Under  authority  granted  by  this  law,  the  city,  by  an  ordinance 
approved  Oct.  27,  1873,  and  ratified  by  a  vote  of  the  people  on 
Nov.  15,  1873,  and  taking  effect  on  the  latter  date,  granted  to  the 
National  Waterworks  Company  a  right  to  erect  and  operate 
waterworks.     The  ordinance  contained  the  following  provisions  : 

"Section  1.  That  the  National  Waterworks  Company  of  New  York, 
a  corporation  duly  organized  under  the  laws  of  the  state  of  New  York, 
be  and  it  is  hereby  authorized,  subject  to  the  limitations  hereinafter 
or  by  law  provided,  to  establish,  construct,  maintain,  and  operate  water- 
works, in  or  adjacent  to  the  city  of  Kansas,  in  the  state  of  Missouri, 
to  receive,  take,  purify,  store,  conduct,  and  distribute  in  and  through- 


KANSAS  CITY,   WATERWORKS  CASE  297 

out  the  said  city  of  Kansas,  pure,  well-settled,  and  wholesome  water ; 
to  lay  down  pipes  and  extend  aqueducts  and  conductors  through  the 
streets,  avenues,  lanes,  alleys,  or  public  grounds  of  the  said  city  of  Kansas ; 
to  erect  and  maintain  all  necessary  buildings,  machinery,  and  attach- 
ments, of  any  description,  necessary  and  proper  and  suitable  for  such 
works,  and  to  supply  to  said  city  and  the  inhabitants  thereof  such 
water  by  said  waterworks.  .  .  .  The  rights  hereby  granted  to  continue 
for  twenty  years  from  the  date  of  the  approval  of  this  ordinance  by 
a  vote  of  the  qualified  voters  of  the  city  of  Kansas.  .  .  . 

"Sec.  4.  The  city  of  Kansas  hereby  reserves  to  itself  the  right  at  its 
option,  and  at  any  time,  to  acquire  and  become  sole  owner  of  said 
waterworks,  including  all  extensions  and  enlargements  thereof  and 
everything  of  every  nature  and  description  belonging  and  pertaining 
thereto,  on  paying  therefor  the  fair  ar_d  equitable  value  thereof,  to  be 
ascertained,  if  the  parties  cannot  agree  thereon,  by  the  circuit  court, 
or  other  court  of  record  of  the  county  of  Jackson,  at  Kansas  City, 
upon  the  petition  of  the  city,  and  in  such  manner  as  the  court  may 
determine ;  provided,  that  a  copy  of  such  petition  shall  be  served  upon 
said  company,  at  least  fifteen  days  before  the  same  shall  be  presented 
to  said  court.  If,  at  the  expiration  of  twenty  years  from  the  time  this 
grant  shall  take  effect,  the  same  shall  not  have  been  renewed,  or  the 
city  shall  not  have  become  owner  of  said  works,  the  city  shall  then  be 
required  to  purchase  and  become  sole  owner  of  said  waterworks  as 
aforesaid,  and  pay  therefor  a  price  agreed  upon  by  the  parties,  or 
ascertained  as  they  may  agree ;  or,  if  the  price  cannot  be  thus  agreed 
upon,  then  the  city  shall  pay  the  fair  and  equitable  value  of  the  whole 
works,  to  be  ascertained  by  said  circuit  or  other  court  of  record  as  afore- 
said, in  such  manner  as  said  court  shall  determine  on  the  petition 
of  either  party  for  the  purpose ;  provided,  that  the  party  presenting 
such  petition  shall  have  served  a  copy  thereof  upon  the  other  party, 
at  least  fifteen  days  before  the  day  of  presentation ;  and,  provided  also, 
that  if  upon  examination  it  be  found  that  such  works  are  not  in  all 
respects  in  good  condition,  and  of  first-class  and  sound  materials,  and 
in  every  way  efficient,  then  the  city  shall  not  be  required  to  purchase 
the  same  at  any  time  nor  at  any  price." 

The  company's  bill,  filed  December  26,  1891,  recited  said  act 
and  ordinance,  and  alleged  that  under  the  contract  thereby  created 
the  company  completed  the  works  for  operation  as  required,  and 
that  they  were  duly  accepted  by  the  city ;  that  the  city  adopted 
another  ordinance  in  February,  1877,  whereby  certain  litigation 
between  it  and  the  company  was  settled,  and  certain  changes  were 
made  in  the  original  ordinance ;  that  on  the  25th  day  of  May, 
1878,  the  city,  by  a  certificate  signed  by  its  mayor  and  the  presi- 


298  ENGINEERING  VALUATION 

dent  of  the  common  council,  did  certify  that  said  company  was 
operating  its  works  to  the  satisfaction  of  the  city ;  that  the  city 
adopted  another  ordinance  in  August,  1881,  whereby  the  con- 
tract was  further  changed ;  that  the  company  had  kept  and  per- 
formed all  the  conditions,  covenants,  premises,  and  agreements 
on  its  part,  and  that  it  would  at  all  times  be  ready,  able,  and 
willing  to  do  so ;  that  the  company  had  expended  large  sums  of 
mone}-  in  building  the  works;  and  that  in  order  to  do  so  it  has 
issued  its  bonds  in  the  aggregate  of  §3,000,000,  secured  by  mort- 
gages covering  the  waterworks  plant ;  that  the  defendant  city, 
disregarding  its  duty  and  obligations  to  the  company  under  the 
ordinances  aforesaid,  and  contrary  to  equity  and  good  conscience, 
and  with  the  intent  and  purpose  to  wreck  the  company's  said 
waterworks  in  said  city,  to  destroy  the  value  thereof,  and  to  ren- 
der valueless  to  the  bondholders  of  said  bonds  the  security'  therefor 
mentioned  in  the  mortgages  referred  to,  and  to  impair  the  obli- 
gations of  said  city  under  said  several  contracts  so  entered  into 
by  it  as  aforesaid,  and  that  with  this  intent  and  purpose,  the  said 
city  falsely  pretended  that  the  ordinances  aforesaid  and  the  con- 
tract embodied  therein,  were  not  in  force,  and  were  no  longer 
binding  and  obligatory  upon  said  defendant,  and  particularly 
that  said  defendant  was  not  and  would  not  l:)e  bound  either  to 
purchase  said  waterworks,  as  by  said  ordinance  was  provided 
and  agreed,  or  to  renew  the  company's  said  grant ;  that  the 
mayor  and  common  council,  law  officers,  and  legal  advisers  of 
the  city  had  publicly  declared  and  represented  that  said  ordinances 
and  contract  were  not  binding  and  obligatory  upon  tlie  city,  and 
had  threatened  and  did  threaten  and  intend  to  r(>pudiate  the 
same,  and  refuse  to  keep  and  p(>rform  the  covenants,  agreements, 
and  promises  therein  contained  and  expressed  to  be  kept  and 
performed  on  the  part  of  the  citj^  with  respect  to  the  renewal  of 
said  contract,  and  the  purchase  of  and  payment  for  said  water- 
works ;  that  in  furtherance  of  said  unlawful  intent,  purpose, 
and  threats,  the  city  had  adopted  certain  charter  amendments, 
and  had  passed  ordinances  pro\'iding  for  constructing  and  operat- 
ing waterworks  in  the  city,  and  for  issuing  bonds  for  the  purpose, 
and  authorizing  plans,  specifications,  and  details  for  the  work 
to  be  prepared,  and  had  publicly  advertised  for  sealed  l)ids  for 
the  purchase  of  said  bonds.  The  bill  ])rayed  a  decree  "  that  the 
several  ordinances  accepted  by  your  orator,  hereinbefore  set 
forth,  as  they  are  taken  together,  are  in  full  force  and  effect, 


KANSAS  CITY,   WATERWORKS  CASE  299 

and  that  the  contract  embodied  therein  is  a  vahd  and  subsisting 
contract,  binding  and  obHgatory  upon  your  orator  and  the  de- 
fendant, and  that  the  defendant  keep  and  abide  by  the  same; 
and  that,  upon  your  orator's  duly  and  faithfully  doing  and  per- 
forming all  things  yet  remaining  to  be  done  upon  its  i)art,  the 
defendant,  its  officers  and  agents,  keep  and  perform  the  covenants, 
promises,  and  agreements  on  its  part,  so  far  as  they  are  execu- 
tory and  unperformed ;  and  that  your  orator  may  have  such 
other  and  further  relief  as  the  case  ma}^  require,  and  as  may  be 
conformable  to  equity,  and  to  your  honors  may  seem  meet,  and 
the  defendant,  its  mayor,  common  council,  officers,  and  agents, 
may  be  perpetually  enjoined  and  restrained  by  the  decree  of  this 
court  from  proceeding  to  construct  and  maintain  said  separate 
and  distinct  system  of  waterworks,  and  from  taking  or  appropriat- 
ing to  its  own  use,  except  under  and  in  pursuance  of  its  contract 
with  your  orator,  any  portion  of  your  orator's  said  system  of 
waterworks ;  and  that  your  orator  may  have  such  other  and 
further  relief  as  the  equity  of  the  case  may  require,  and  as  to  the 
court  may  seem  meet." 

The  answer  of  the  city,  filed  December  6,  1892,  admitted  the  act 
of  the  general  assembly  and  the  ordinances  referred  to,  the  con- 
struction and  operation  of  the  waterworks  by  the  company,  and 
the  fact,  as  alleged,  that  the  city  had  availed  itself  of  the  rights 
and  privileges  stipulated  for  under  the  contract,  so  far  as  the 
company  had  been  able  to  furnish  them,  but  denied  that  the  com- 
pany had  complied  with  its  contract  by  making  a  complete  and 
sufficient  system  of  waterworks  for  the  city,  as  provided  for  in  the 
ordinance.  The  answer  set  up  the  provision  of  the  contract  which 
required  the  company,  during  the  year  1874,  to  construct  such 
a  complete  and  efficient  system,  and  to  have  and  to  hold  the  same, 
at  all  times  during  the  period  of  the  franchise,  subject  to  the  option 
and  right  of  the  city  to  purchase  and  become  the  sole  owner  of 
the  works,  in  the  manner  therein  provided ;  and  alleged  a  breach 
on  the  part  of  the  company  of  that  provision,  in  that  in  many 
respects  the  company  had  failed  to  construct  and  have  the  kind 
of  waterworks  required  by  the  contract,  or  to  have  any  complete 
system  of  waterworks,  specifying  various  particulars  in  which 
the  company's  system  was  alleged  to  be  inefficient  and  incom- 
plete; alleged  that  by  reason  of  such  failure  on  the  company's 
part  the  city  was  relieved  from  any  obligation  to  purchase  the 
company's  system,  or  any  part  thereof;    and  admitted  the  pur- 


300  ENGINEERING  VALUATION 

pose  and  intent  of  the  city,  in  the  immediate  future,  to  acquire 
the  ownersliip  and  control  of  a  system  of  waterworks  of  its  own. 
The  company  filed  a  reply  specially  denying  all  the  substantial 
allegations  of  the  answer,  and  alleging  the  company's  readiness 
and  willingness,  when  required,  to  convey  its  complete  system 
of  works  to  the  city.  The  city,  also,  at  the  time  of  filing  its  an- 
swer, December  6,  1892,  filed  a  cross  bill  which  set  up  the  various 
breaches  of  the  contract  on  the  part  of  the  company  alleged  in 
the  answer,  and  alleged  that  the  city  had  been  and  was  by 
those  breaches  released  from  all  obligations  to  the  company ;  that 
the  company,  by  its  proceeding  in  this  case,  and  by  many  other 
means  and  practices,  was  preventing  the  city  from  exercising 
its  unquestioned  right  to  provide  itself  with  a  new  system  of 
waterworks ;  and  that  the  company  had  threatened,  and  was 
then  threatening,  to  cut  off  the  water  supply  from  the  city  and 
its  inhabitants,  as  an  illegitimate  means  of  forcing  the  city  to 
comply  with  its  demands,  and  to  desist  from  its  purpose  of  build- 
ing its  own  waterworks,  —  and  accordingly  prayed  a  decree  the 
opposite  of  that  prayed  for  by  the  company,  declaring  the  city  re- 
leased and  absolved  from  all  obligations  under  the  contract  to  pur- 
chase its  system  of  waterworks,  or  any  part  thereof,  and  enjoin- 
ing and  restraining  the  company  from  interfering  in  any  way 
with  the  city's  proceedings  to  sell  its  bonds  and  construct  its 
own  waterworks,  and  also  for  the  payment  of  damages  on  account 
of  the  failure  of  the  company  to  furnish  the  degree  of  fire  pressure 
stipulated  for  in  the  contract,  which  had  been  paid  for  for  years 
at  the  contract  rates,  and  further  restraining  the  company  from 
carrying  out  its  threat  of  cutting  off  the  water  supply  pending 
the  suit,  and  also  that  a  receiver  be  appointed  for  the  company. 

The  answer  of  the  company  to  this  cross  bill,  filed  February 
28,  1892,  contained,  in  addition  to  some  of  the  matters  stated  in 
its  original  bill,  the  same  denials  and  allegations  contained  in  its 
reply  to  the  answer,  and  asserted  its  complete  and  perfect  owner- 
ship of  its  plant,  and  its  ability  to  convey  and  deliver  the  same  to 
the  city  whenever  required,  and  its  readiness  to  do  so  on  the 
loth  day  of  November,  1893,  "when  the  obligation  of  said  city 
to  purchase  shall  become  absolute." 

To  this  answer  the  city  filed  a  replication. 

After  the  expiration  of  the  franchise,  on  the  15th  day  of  Novem- 
ber, 1893,  the  city,  on  the  29th  day  of  November,  1893,  filed  a 
supplemental  cross  bill  setting  up  the  expiration  of  the  contract 


KANSAS  CITY,   WATERWORKS  CASE  301 

on  the  preceding  15th  day  of  November;  that  the  city  had  not 
renewed  its  grant  to  the  company;  that  no  terms  of  agreement 
could  be  entered  into  between  the  city  and  the  company  -with 
reference  to  the  matter ;  and  that  the  company  had  failed  to 
have  such  works  as  the  city  was  bound  to  purchase.  It  alleged 
that  since  November  15,  1893,  the  time  of  the  expiration  of  said 
grant,  the  company  had  had  no  interest  in  or  title  to  that  portion 
of  the  plant  within  the  limits  of  the  city,  and  was  wrongfully 
claiming  to  own  the  same,  and  to  use  the  water  mains,  pipes, 
and  works  for  the  purpose  of  furnishing  water  to  private  con- 
sumers in  the  city,  and  had  already  acted  and  coerced  private 
consumers  into  paying  water  rentals  in  advance  up  to  the  1st 
day  of  April,  1894,  and  had  succeeded  in  collecting  from  such  pri- 
vate customers  an  amount  of  money  equal  to  at  least  -5200,000 ; 
that  the  collection  of  such  rental  was  to  cover  the  use  of  water 
after  the  expiration  of  the  franchise  aforesaid,  and  that  the  com- 
pany proposed  to  continue  in  the  future  to  make  such  exactions 
from  such  private  consumers  without  making  any  allowance  to 
the  city  for  the  use  of  its  streets  and  property ;  that  the  city  was 
desirous  of  having  its  rights  in  the  premises  ascertained  and  de- 
termined ;  that,  if  the  company  had  any  interest  in  the  pipes  and 
works  within  the  city,  the  city  desired  to  have  such  interest  as- 
certained and  determined  and  adjudicated  by  the  court,  and  that 
the  city  be  permitted  to  acquire  that  interest  by  the  exercise  of 
the  right  of  eminent  domain.  It  further  alleged  that  under  the 
contract  the  necessary  real  estate  and  rights  of  way  for  the  erection 
of  the  works  was  purchased  and  had  been  paid  for  by  the  city, 
but  that  the  company  was  wrongfully  withholding  the  title  to 
the  same  from  the  city,  and  keeping  it  in  itself,  subject  to  its  mort- 
gages ;  that  the  city  had  been  largely  damaged  by  the  want  of 
the  fire  pressure  guaranteed  by  the  contract,  —  and  asked  that 
those  damages  might  be  ascertained  and  determined.  It  further 
alleged  great  damages  by  reason  of  the  failure  of  the  company 
to  construct  and  have  for  its  use,  at  the  termination  of  the  fran- 
chise, a  complete  system  of  waterworks,  and  asked  damages  in 
that  respect.  It  also  alleged  the  threat  of  the  company  to  cut 
oE  the  supply  of  water  to  the  city  for  public  purposes,  and  the 
great  danger  that  would  arise  in  case  this  threat  should  be  exe- 
cuted, and  offered  to  pay,  if  required,  a  reasonable  sum  for  water 
furnished  for  public  purposes.  It  therefore  prayed  a  decree 
declaring  that  the  company's  right  and  title  to  the  works,  within 


302  ENGINEERING  VALUATION 

the  limits  of  the  citj'',  had  expired,  and  that  the  same  belong  to 
the  city ;  that  the  court  ascertain  and  determine  the  interest 
of  the  company  in  the  works  described  by  the  pleadings,  and  that 
the  city  be  permitted  to  obtain  the  same  upon  making  just  com- 
pensation to  be  determined  by  the  court  in  such  manner  as  the 
court  may  provide ;  that  the  company  be  required  to  convey  the 
real  estate  standing  in  its  name  to  the  city ;  that  the  damages 
which  the  city  had  suffered  by  reason  of  the  failure  of  the  company 
to  furnish  the  required  fire  pressure  in  the  past  be  determined 
and  adjudged  in  favor  of  the  city;  that  the  sum,  if  anything, 
which  the  city  ought  to  pay  to  the  company  for  furnishing  water 
for  public  use,  pending  the  litigation,  be  determined ;  that  the 
company  be  enjoined  from  cutting  off  the  supply  of  water  to  the 
cit}^  for  pu1)Iic  purposes  ;  that  if  necessary,  a  receiver  be  appointed 
to  take  and  operate  the  works. 

The  answer  of  the  company  to  the  supplemental  cross  bill  set 
up: 

"That  the  said  city  is  without  authority  or  power  to  purchase 
said  system  of  waterworks  for  the  following  reasons  and  because 
of  the  following  facts,  to-wit : 

"(a)  The  constitution  of  the  state  of  Missouri,  of  1875,  withdrew 
from  said  city  the  power  to  become  indebted  to  an  amount  sufficiently 
large  to  purchase  said  system  of  waterworks,  and  said  city  has  no  means 
to  apply  to  such  purpose,  and  could  only  accomplish  the  same  by  be- 
coming indebted  to  an  amount  which  would  make  its  indebtedness 
exceed  the  limitations  in  said  constitution  contained,  and  the  annual 
interest  on  such  indebtedness  larger  than  could  be  paid  out  of  the 
taxes  authorized  to  be  levied  for  that  purpose. 

"(6)  By  section  17  of  article  13  of  the  charter  of  said  city,  adopted 
in  1889,  it  is  expressly  provided,  referring  to  the  contract  with  this 
defendant  embodied  in  said  Ordinances  Nos.  10,524  and  14,776,  that 
'the  city  can  purchase  such  works,  or  renew  the  franchise  thereof  only 
by  ordinance  passed  by  a  majority  vote  of  the  members  elect  of  each 
house  of  the  common  council ;  and  only  then  in  the  event  that  said 
ordinance  shall  be  approved  by  a  vote  of  two-tliirds  of  the  qualified 
voters  of  the  city  voting  at  an  election  held  for  such  purpose.'  And 
the  defendant  states  that  no  such  ordinance  has  been  passed,  nor  has 
any  election  been  held,  as  providod  in  said  charter. 

"(c)  Under  Ordinance  Xo.  2,203  of  said  city,  approved  .\ugust  21, 
1890,  an  amendment  to  the  charter  of  said  city  was  adopted,  the  same 
being  mentioned  in  the  seventeenth  paragraph  of  the  original  bill 
of  complaint,  and  a  copy  thereof  annexed  to  said  bill  as  Schedule  E; 


KANSAS  CITY,   WATI]RWORKS  CASE  303 

and  in  and  by  such  amendment  tlie  said  city  oxpn^ssly,  and  for  tlio 
precise  purpose  of  disabling  itself  from  (tarrying  out  its  contractual 
obligations  to  this  defendant,  limitcxl  its  power  to  hold  property  for 
waterworks  purposes  to  sucli  property  as  might  be  located  in  the  state 
of  Missouri. 

"(d)  Questions  having  been  made  as  to  the  validity  of  said  charter 
amendments,  the  complainant  caused  the  general  assembly  of  tne  state 
of  Missouri  to  enact  'An  act  concerning  waterworks,  and  a  supply  of 
water  for  cities  now  having  or  that  may  hereafter  have  a  population  of 
more  than  one  hundred  thousand  (100,000)  and  less  than  three  hundred 
thousand  (300,000)  inhabitants,  whether  organized  under  general 
law  or  special  charters,  or  under  section  sixteen  (16)  of  article  nine  (9) 
of  the  constitution  of  this  state,  and  to  issue  bonds  for  acquiring  water- 
works, and  to  make  contracts  for  supplying  water  to  such  cities, 
approved  March  6,  1893,  which  is  in  substance  the  same,  and  contains 
the  same  limitations  and  restrictions  upon  the  powers  of  the  complain- 
ant as  it  imposed  upon  itself  by  its  charter  amendment,  namely,  to 
acquire  only  such  property  as  is  situated  within  the  state  of  Missouri. 
The  complainant  is  the  only  city  to  which  said  act  has  or  can  have 
application,  and  the  same  was  caused  to  be  enacted  by  said  complain- 
ant for  the  same  purpose  which  moved  the  adoption  of  said  charter 
amendments,  as  hereinbefore  stated. 

"(e)  Under  section  four  of  said  Contract  Ordinance  No.  10,524,  the 
said  city  could  only  become  the  owner  of  said  system  of  waterworks 
by  exercising  its  option  to  purchase  the  same  on  or  before  November  15, 
1893 ;  and  the  said  city,  until  long  after  that  date,  adhered  to  the 
election  made  and  purposes  expressed  in  its  original  cross  bill  herein. 
And  the  defendant  shows  that  under  the  charter  of  said  city  the  author- 
ity to  act  for  said  complainant  in  the  premises  is  vested  in  its  common 
council  by  the  passage  of  a  proper  ordinance ;  that  no  action  whatever 
has  been  taken  by  such  body,  or  by  an  officer  or  person  authorized  to 
act  for  said  city,  relative  to  the  matter ;  and  that  the  only  step  taken 
in  the  premises  has  been  through  the  solicitors  in  this  cause,  upon  their 
own  motion,  by  the  filing  of  the  so-called  'Supplementary  Cross  Bill' 
herein. 

"  (/)  For  more  than  four  years  prior  to  the  filing  of  the  said  sui^ple- 
mentary  cross  bill,  the  city  has  claimed  and  contended  that  it  was 
absolved  and  released  from  the  contract  with  this  defendant,  and  that 
it  did  not  propose  to,  and  would  not,  purchase  the  defendant's  system 
of  waterworks,  or  any  part  thereof,  although  said  company  has  always 
denied,  and  does  still  deny,  said  claim. 

"By  reason  of  which  facts  this  defendant  avers  that  said  city 
is  disabled,  debarred,  and  prohiI)ited  from  purchasing  its  said  sys- 
tem of  waterworks,  and  that  said  city  waived  any  and  all  right  to 
do  so." 


304  ENGINEERING  VALUATION 

The  answer  also  contained  allegations  as  to  the  title  to  the 
property  constituting  the  compan3''s  system,  and  the  company's 
ability  to  convey,  and  denied  the  allegations  of  the  supplemental 
cross  bill  as  to  insufficiency  of  the  company's  system,  and  damages 
to  the  city  therefrom. 

On  the  hearing  of  the  cause,  on  March  22,  1894,  the  city  filed 
an  amendment  to  its  supplementary  cross  bill,  as  follows : 

"If,  as  defendant  in  its  various  pleadings  avers,  it  now  has  such  a 
sj^stera  of  waterworks  as  by  the  act  of  March  24,  1873,  and  Ordinance 
10,524,  provided  for,  then  your  orator  is  read}^  and  willing,  and  now 
offers,  to  pay  for  same  a  fair  and  equitable  value  thereof.  Your 
orator  has  at  all  times  performed  all  the  duties  and  obligations  on  its 
part,  and  is  ready  and  willing  to  al^ide  l)y  and  perform  all  obligations 
still  remaining,  if  any,  including  the  payment  of  any  mone}^  that  ought  to 
be  paid  by  virtue  of  said  law  and  ordinance ;  but  it  respectfully  shows 
that,  if  the  court  should  decree  that  the  contract  be  specifically  en- 
forced, such  decree  ought  to  be  accompanied  with  conditions  requiring 
the  company  to  furnish  a  complete,  efficient,  and  unincumbered  supply 
and  distribution  system,  and  requiring  the  company,  until  possession 
is  obtained  by  your  orator,  to  furnish  water  free  of  charge,  and  to 
account  and  pay  over  to  your  orator  all  income  received  since  Novem- 
ber 15,  1893.  Your  orator  therefore  asks  the  court  to  ascertain  and 
determine  the  rights  of  the  parties  under  and  l)y  virtue  of  the  said 
law  and  ordinance,  and  as  thej'  existed  on  and  after  November  15,  1893, 
and,  when  so  ascertained  and  determined,  to  enforce  the  same  by  a 
proper  decree  in  the  premises." 

The  answer  of  the  company  to  this  amendment  was  as  follows: 

"Answering  the  amendment  made  to  the  supplementary  cross  bill 
on  March  22,  1894,  and  numbered  paragraph  12  thereof,  the  defendant 
says  that  it  is  not  true  that  the  said  Kansas  City  has  at  all  times,  or 
at  any  time,  performed  its  duties  or  obligations  in  the  premises,  or 
that  it  can  or  will  do  so  in  the  future.  A  distinct  breach  of  duty  is  the 
wrongful  refusal  to  pa}'  to  this  defendant  money  earned  by  it  under  the 
contract,  and  adjudged  to  it  by  this  court.  The  defendant  adopts  its 
answer  heretofore  filed  to  the  supplementary  cross  bill  as  an  answer 
to  said  amended  pleading,  and  prays  as  in  said  answer  it  has  already 
prayed." 

After  the  testimony  in  the  case  was  taken,  the  court  appointed 
two  commissioners  to  make  personal  inspection  of  the  system 
of  waterworks,  and  to  estimate  and  fix  the  value  of  the  works  and 
system  as  a  whole,  to  be  predicated  on  the  actual  value  of  the 
works,  and  not  upon  the  stock  of  the  company,  and  to  be  the  fair 


KANSAS  CITY,  WATERWORKS  CASE  305 

and  equitable  value  of  the  whole  works  at  the  time ;  to  estimate 
and  fix,  also,  in  like  manner,  the  proportionate  value  of  that  part 
of  the  system  lying  in  the  state  of  Missouri ;  and  to  inquire  and 
report  on  other  matters.  Upon  the  pleadings,  the  evidence  in  the 
case,  and  the  report  of  the  commissioners,  the  cause  came  on  for 
hearing  on  March  23,  1894,  and  on  April  20,  1894,  a  decree  was 
rendered,  by  which  it  was  ordered,  adjudged,  and  decreed  as 
follows : 

"First.  That  under  the  act  of  the  legislature  and  the  contract  between 
the  National  Waterworks  Company  of  New  York  and  the  city  of  Kansas 
City,  set  out  in  the  pleadings  in  this  case,  the  said  city  is  legally  bound 
to  purchase  from  said  company,  and  said  company  is  legally  bound  to 
sell  to  the  said  city,  the  full,  complete,  and  entire  waterworks  plant 
by  which  the  said  city  and  its  inhabitants  are  now  supplied  with  water, 
including  all  portions  of  said  plant,  as  well  that  portion  in  the  state  of 
Kansas,  and  commonly  known  as  the  '  Quindaro  Supply  Works  and  Flow 
Pipe'  as  that  portion  situated  in  the  state  of  Missouri,  together  with  all 
lots  and  lands  belonging  to  or  in  any  wise  used  as  part  of  said  plant, 
with  the  exceptions  mentioned  in  the  eleventh  paragraph  of  this 
decree,  and  everything  of  every  nature  belonging  or  pertaining  to  said 
waterworks  plant. 

"Second.  That  said  city,  under  the  said  contract,  is  bound  to  pay 
for  said  complete  or  whole  waterworks  plant,  and  the  said  company  is 
bound  to  receive  in  full  payment  therefor  'the  fair  and  equitable  value 
of  the  whole  works,'  as  provided  in  said  contract. 

"Third.  The  court  finds  that  the  fair  and  equitable  value  of  the  said 
complete  and  whole  waterworks  plant  is  two  million  seven  hundred  and 
fourteen  thousand  dollars  ($2,714,000). 

"Fourth.  That  said  city  is  entitled  to  the  possession,  use,  and  control 
of  said  whole  and  complete  waterworks  plant,  and  said  company  shall, 
on  the  30th  day  of  April,  1894,  surrender  and  deliver  to  the  said  city 
the  said  whole  and  complete  waterworks  plant,  and  everything  pertain- 
ing thereto,  and  all  rights,  leases,  or  contracts  relating  thereto,  and 
necessary  or  essential  to  the  full  enjoyment  of  said  waterworks  as 
they  are  now  enjoyed  and  operated  by  the  said  company;  and 
the  said  company  is  hereby  enjoined  from  using  or  operating  said 
works,  or  retaining  possession  or  control  of  any  part  thereof,  after 
the  said  30th  day  of  April,  1894,  and  is  enjoined  from  refusing  or  denying 
to  said  city  the  complete  and  peaceable  possession  of  said  works  on  that 
day;  and  said  city  is  enjoined  from  refusing  or  neglecting  to  demand 
and  accept  the  possession  of  said  works  on  that  day,  and  no  appeal  of 
this  cause  by  either  or  both  of  the  parties  thereto  shall  operate  to 
suspend  these  injunctions. 


306  ENGINEERING  VALUATION 

"Fifth.  In  the  event  that  said  oompanj'-  is  unable  to  deliver  the 
possession  of  tlie  whole  and  conii)lete  waterworks  plant,  including  the 
Quindaro  Supply  Works,  then  said  company  shall  deliver  and  the  city 
shall  receive  on  or  before  said  30th  day  of  April,  1894,  that  part  of 
the  plant  in  the  state  of  Missouri ;  and  said  company  is  hereby  enjoined 
from  interfering  with  the  possession  of  said  city  to  that  part  of  said 
works  situated  in  the  state  of  Missouri;  and  this  injunction  shall  re- 
main in  force  pending  any  appeal  in  this  case. 

"Sixth.  The  said  companj',  within  six  months  from  the  date  of  this 
decree,  shall  make,  execute,  and  deliver  to  the  city  a  good  and  sufficient 
assignment  and  conveyance  of  said  whole  and  complete  waterworks 
plant  mentioned  in  the  first  paragraph  of  this  decree,  acceptable  to 
the  city  or  approved  by  this  court,  and  when  such  conveyance  is 
accepted  by  the  city,  or  approved  by  this  court,  the  city  shall  become 
bound  to  pay  to  the  said  comi)any  the  sum  of  two  million  seven  hundred 
and  fourteen  thousand  dollars  ($2,714,000),  being  the  fair  and  equitable 
value  of  said  works  in  the  manner  following,  that  is  to  say :  The  city 
shall  agree  and  assume  to  pay  on  the  incumbrances  and  liens  on  said 
waterworks  plant,  to  the  holder  or  holders  thereof,  as  their  several 
rights  and  interests  and  priority  thereto  shall  appear,  an  amount  of  said 
lien  equal  to  said  sum  of  two  million  seven  hundred  and  fourteen 
thousand  dollars  (S2,714,000),  and  shall  become  bound  to  save  said 
company  harmless  as  to  that  amount  of  said  lien.  When  said  sale 
and  transfer  of  said  waterworks  jolant  is  made  as  provided  in  this 
paragraph,  the  liability  of  the  city  to  pay  therefor  as  herein  provided 
shall  relate  back  to  the  30th  day  of  April,  1894. 

"Seventh.  If  the  waterworks  company  shall  fail  to  make  and  tender 
a  sufficient  conveyance  of  said  whole  and  complete  waterworks  plant 
within  said  six  months  from  the  date  of  this  decree,  then  the  city  shall 
not  be  required  to  pay  the  price  fixed  for  the  complete  and  whole  plant ; 
and  the  question  whether  the  city  shall  pay,  or  is  liable  to  pay,  any 
sum  whatever,  for  that  part  or  fraction  of  the  plant  in  Missouri  which 
does  not  include  the  source  of  supply,  is  reserved. 

"Eighth.  That  said  city  is  not  entitled  to  recover  from  said  company 
any  sum  for  or  on  account  of  any  of  the  several  claims  for  damages  set 
up  in  its  cross  bill. 

"Ninth.  The  said  city  shall  pay  to  said  company  the  contract 
price  for  hydrant  rentals  down  to  and  including  the  30th  day  of  Ai)rii, 
1894,  amounting,  principal  and  interest,  after  deducting  all  payments 
made  thereon,  to  the  sum  of  one  hundred  and  thirty-nine  thousand 
four  hundred  and  fifty-two  dollars  and  eightj'-two  cents  ($139,452.82), 
to  be  paid  in  the  time  and  manner  following,  viz. :  One-third  of  said 
sum  sliall  be  paid  upon  delivery  by  said  company  to  the  city  of  the 
possession  of  the  whole  and  complete  waterworks  plant  as  required  in 
the  fourth  paragraph  of  this  decree,  one-third  when  said  companj'' shall 


KANSAS  CITY,   WATERWORKS  CASE  307 

deliver  to  the  city  a  sufficient  conveyance  or  transfer  of  the  whole  and 
complete  waterworks  plant,  and  the  remaining  third  six  montlis 
thereafter ;  each  of  said  installments  to  bear  interest  at  6  per  centum 
per  annum  from  April  30,  1894. 

"Tenth.  That  said  company  shall  have  the  right  to  collect  and  retain 
all  water  rentals  which  were  due  prior  to  the  30th  day  of  April,  1894,  and 
no  claim  therefor  shall  be  made  by  the  city  against  the  company  or  the 
comsumers ;  and  the  city  shall  collect  and  appropriate  to  its  own  use 
all  water  rentals  which  may  accrue  after  the  30th  day  of  April,  1894,  and 
said  company  shall  have  no  claim  against  the  city  or  the  consumers 
therefor. 

"  Eleventh.  That,  conformably  to  the  consent  expressed  by  counsel 
for  both  parties  at  the  hearing,  the  property  described  in  the  pleadings 
as  the  'Kaw  Point  Pumping  Station,'  and  the  six  or  ten  acres  of  land 
more  or  less,  connected  therewith,  and  now  owned  by  said  company, 
shall  remain  its  property,  and  shall  not  be  conveyed  to  said  city  as 
part  of  said  waterworks  plant.  The  value  of  said  Kaw  Point  pumping 
station  has  been  deducted  from  the  price  to  be  paid  for  the  complete 
works. 

"Twelfth.  That  each  party  shall  pay  one-half  of  the  costs  of  these 
suits. 

"Thirteenth.  That  this  case  is  reserved  for  the  purpose  of  making 
such  other  and  further  orders  as  may  be  found  necessary  to  carry 
this  decree  into  effect,  and  as  may  be  equitable  and  just." 

C.  0.  Tichenor,  Gardiner  Lathrop,  and  L.  C.  Krauthoff,  for 
National  Waterworks  Company. 

Frank  Hagerman,  John  C.  Gage,  L.  C.  Slavens,  R.  W.  Quarles, 
0.  H.  Dean  and  F.  F.  Rozelle  for  Kansas  City,  Missouri. 

Before  Brewer,  Circuit  Justice,  Sanborn,  Circuit  Judge,  and 
Thayer,  District  Judge. 

Brewer,  Circuit  Justice,  stated  the  conclusions  of  the  court  as 
follows : 

The  urgency  of  the  situation  seems  to  forbid  that  this  case  should 
be  retained  by  us  for  the  length  of  time  which  would  be  required  for 
the  preparation  of  an  opinion  thoroughly  and  satisfactorily  discuss- 
ing all  the  difficult  questions  presented  by  counsel.  All  the  time  at 
our  command  we  have  given  to  an  examination  and  consideration 
of  the  voluminous  testimony,  the  elaborate  briefs,  and  exhaustive 
arguments  of  counsel.  We  feel,  therefore,  that  it  is  a  duty  to  simply 
formulate  briefly  the  conclusions  to  which  we  have  arrived,  and  an- 
nounce the  decree  which  must  be  entered. 

1.  The  act  of  1873  provided  "that  at  the  expiration  of  the  twenty 
years,  if  the  grant  be  not  renewed,  the  city  shall  purchase."     The 


308  EXGINEERIXG  VALUATION 

ordinance  passed  in  pursuance  of  that  act,  and  in  effect  the  contract 
under  which  the  works  were  created,  provided  that  on  a  failure  to 
renew  the  grant  at  the  expiration  of  20  years  "the  city  shall  then  be 
required  to  purchase."  There  has  been  no  renewal  of  the  grant. 
The  twenty  years  have  elapsed.  The  imperative  voice  of  the  act 
and  the  ordinance  is  that  the  city  "shall  purchase."  This  is  not  an 
incidental,  directory,  or  subordinate  provision,  but  one  mandatory, 
\ntal,  and  controlling.  The  thought  of  the  legislature  was  that  the 
cit}'  should  own  its  waterworks ;  that,  if  anj^  arrangement  was  made 
with  a  corporation  for  their  construction  and  operation,  the  control 
and  right  of  such  company  should  be  temporary,  and  the  city  should 
become,  willingly  or  unwillingly,  at  a  certain  time  the  owner.  The 
time  fixed  was  at  the  expiration  of  20  years,  with  a  privilege  of  extension 
for  another  20  j^ears.  This  vital,  mandatory,  and  controlling  pro- 
vision compels  a  decree  that  the  company  sell  and  the  city  buy.  Such 
was  the  will  of  the  legislature ;  such  the  terms  of  the  act  and  the  ordi- 
nance. 

2.  With  reference  to  the  matter  of  pleading,  nearly  two  years  before 
the  expiration  of  the  20  years  the  company  filed  a  bill  alleging  per- 
formance on  its  part  of  the  terms  of  the  contract,  and  also  threatened 
action  on  the  part  of  the  city  in  violation  of  its  obligations,  and  praying 
a  decree  that  the  contract  "is  a  valid  and  subsisting  contract,  binding 
and  obligatory  upon  your  orator  and  the  defendant,  and  that  the 
defendant  keep  and  abide  by  the  same,  and  that,  upon  your  orator's 
duly"  and  faitlifuUy  doing  and  performing  all  things  yet  remaining 
to  be  done  upon  its  part,  the  defendant,  its  officers  and  agents,  keep 
and  perform  the  covenants,  promises,  and  agreements  on  its  part,  so 
far  as  they  are  executory  and  unperformed,  and  that  your  orator 
may  have  such  other  and  further  relief  as  the  case  may  require,  and  as 
may  be  conformalile  to  equity,  and  to  your  honors  may  seem  meet." 
At  that  time  the  obligation  of  the  city  to  purchase  had  not  yet  arrived, 
but  under  such  a  bill  a  decree,  after  the  lapse  of  20  years,  and  when, 
there  being  no  renewal  of  the  term,  the  obligation  of  the  city  to  pur- 
chase has  arisen,  may  properly  require  the  last  act  of  compliance  with 
the  terms  of  that  contract,  to  wit,  purchase  and  payment  by  the 
city ;  so,  notwithstanding  the  fact  that  the  cro.ss  bill  of  the  city,  and 
the  amendments  thereto,  may  not  be  altogether  harmonious,  and 
might,  if  they  stood  as  the  only  affirmative  pleadings,  be  obnoxious  to 
the  criticisms  of  the  counsel  for  the  company,  yet  there  is  in  the  original 
bill,  with  its  prayer,  coupled  with  the  changes  of  right  brought  by 
lapse  of  time,  sufficient  allegation  and  prayer  upon  which  to  rest  a  decree 
for  the  completion  of  the  sale  and  purchase.  It  is  true,  and  indeed 
confessed  in  the  argument  of  counsel  for  the  company,  that  it  would 
now  prefer  not  to  sell,  but  to  continue  the  franchise ;  but  nevertheless, 
it  has  for  nearly  three  years  placed  itself  before  the  court  in  the  attitude 


KANSAS  CITY,  WATERWORKS  CASE  309 

of  asking  a  decree  for  performance  of  this  contract ;  and,  never  hav- 
ing dismissed  its  bill  or  withdrawn  its  prayer,  it  is  now  too  late  to 
say  that  the  decree  for  sale  and  purchase  is  not  responsive  to  the 
pleadings.  If  there  were  any  formal  defect,  —  any  omission  or  addition 
of  statement  necessary  to  distinctly  present  the  issues  and  uphold  the 
decree,  —  an  amendment  would  be  permissible  at  the  present  time, 
and  in  the  appellate  court.  Pleadings  in  equity  cases  may  be  con- 
formed to  the  proofs ;  and  we  have  the  parties  before  us,  the  entire 
facts  of  the  controversy,  and  the  arrival  of  the  time  when  a  final  de- 
termination of  the  rights  between  them  is  necessary.  No  technical 
defect  in  the  pleadings  should  stay  the  hands  of  a  court  of  equity. 

3.  We  dissent  in  toto  from  the  claim  of  the  city  that  at  the  lapse  of 
the  20  years  the  title  to  this  property,  with  the  right  of  possession, 
passed  absolutely  to  it,  without  any  payment  or  tender  of  payment, 
leaving  only  to  the  company  the  right  to  secure  compensation  by  agree- 
ment or  litigation,  as  best  it  could.  Much  was  said  in  argument 
of  the  relative  rights  of  lessor  and  lessee  to  buildings  erected  during  the 
term  of  the  lease.  The  city  and  the  company  were  called  licensor 
and  licensee,  and  it  was  insisted  that,  as  the  right  to  operate  was  to 
cease  at  the  expiration  of  20  years,  the  relation  was  equivalent  to  that 
of  lessor  and  lessee ;  that  full  title  and  right  of  possession  passed  in- 
stantly to  the  city,  leaving  all  questions  of  amount  and  time  and 
manner  of  payment  to  be  subsequently  determined.  Much  was  said, 
too,  about  the  rule  of  construction  of  public  grants ;  that  rule  being  that 
the  grants  are  to  be  construed  favorably  to  the  public,  and  unfavorably 
to  the  grantee.  It  is  unnecessary  to  attempt  to  define  the  peculiar 
quality  of  the  title  held  by  the  company,  nor  do  we  question  the  rule 
of  construction  of  public  grants ;  but  all  contracts  involving  property 
rights  and  obligations  between  municipalities  and  individuals  must  be 
presumed  to  be  based  upon  and  to  recognize  the  ordinary  laws  of 
business  transactions,  and,  if  any  departure  therefrom  is  contemplated, 
such  departure  must  be  clearly  manifested.  Now,  the  familiar  and 
ordinary  law  of  business  transactions  is  that  he  who  parts  with  title 
receives,  at  the  time,  payment.  In  other  words,  payment  of  price  and 
transfer  of  property  are  contemporaneous  and  concurrent  acts.  When 
it  is  affirmed  that  a  contract  made  by  a  municipality  contemplates  that 
he  whose  money  builds  and  constructs,  and  therefore  establishes  title 
to,  property,  shall  surrender  his  title  and  possession  without  payment, 
or  even  the  amount  thereof  determined,  the  language  compelling  such  a 
construction  must  be  clear  and  imperative.  There  is  no  such  language 
in  either  the  act  or  the  ordinance.  While  it  is  true  that  the  act  pro- 
vides that  no  grant  so  made  shall  confer  the  right  to  operate  the  water- 
works for  any  period  beyond  20  years,  yet  such  provision  is  no  more 
imperative  than  the  one  that  at  the  expiration  of  the  20  years  the  city 
shall  purchase  and  pay  therefor.     If  the  city  fails  to  purchase  and  pay, 


310  ENGINEERING  VALUATION 

it  acquires  no  title,  no  right  of  possession,  to  the  property  of  the  water- 
works. There  is  no  language  which  would  justify  the  court  in  sajnng 
that  it  is  clearly  c.\i)r(\ssc(l  that  the  purpose  of  this  contract  and  the 
thought  of  the  legii^lature  were  to  vest  the  title  and  right  of  possession 
in  the  city  at  the  end  of  20  years,  lea\'ing  to  future  litigation  the  fixing 
of  the  amount  and  the  enforcing  of  the  fact  of  payment.  If  at  the 
expiration  of  the  20  years  the  city  had  tendered  to  the  company,  in 
payment  for  the  property,  an  amount  admitted  or  found  to  be  ''the 
fair  and  equitable  value,"  doubtless  the  right  of  the  city  to  the 
possession  and  future  earnings  would  have  immediately  accrued,  and 
the  present  decree  would  have  been  based  upon  such  transfer  of  right, 
but  no  such  tender  was  made.  In  so  far,  therefore,  as  the  decree  of 
the  circuit  court  attempted  to  transfer  the  title  and  the  possession 
to  the  city  before  payment,  we  are  constrained  to  hold  tliat  it  was 
erroneous. 

4.  It  is  objected  that  the  city,  by  virtue  of  the  certain  amendments 
to  its  charter  and  certain  acts  of  the  legislature,  has  become  disabled 
from  taking  the  title  to  all  the  property  which  makes  up  the  water- 
works system.  This  is  a  matter  in  respect  to  which  the  company  need 
not  concern  itself.  If  it  is  paid  the  fair  and  equitable  value  of  the 
property,  as  provided  by  the  contract,  then  its  rights  have  ceased,  and 
the  city  can  settle  with  other  })arties  the  matters  of  title  and  possession. 

5.  The  difficult  question,  however,  still  remains ;  and  that  is,  what  is 
"the  fair  and  equitable  value"  which,  by  the  statute  and  the  ordinance, 
the  city  is  to  pay  for  the  waterworks  ?  This  amount  was  found  b}^  the 
circuit  court  to  be  $2,714,000.  The  company  insists  that  the  test  is 
to  take  the  income  or  earnings,  and  capitalize  them.  The  earnings 
pay  6  per  cent  on  four  millions  and  a  half.  In  other  words,  the  com- 
pany has  produced  a  property  which  earns  6  per  cent  on  four  millions 
and  a  half ;  and  that,  it  is  claimed,  is  the  fair  valuation  of  the  property, 
6  per  cent  being  ordinary  interest.  On  the  other  hand,  the  city  insists 
that  the  franchise  has  ceased,  and  that  basing  the  value  upon  earnings 
is  in  effect  valuing  a  franchise  which  no  longer  exists,  and  which  the 
city  is  not  to  pay  for ;  that  the  true  way  is  to  take  the  value  of  the  pipe, 
the  machinery,  and  real  estate,  put  together  into  a  waterworks  system, 
as  a  complete  structure,  irrespective  of  any  franchise,  —  irrespective 
of  anything  which  the  property  earns,  or  may  earn  in  the  future.  We 
are  not  satisfied  that  either  method,  by  itself,  will  show  that  which, 
under  all  the  circumstances,  can  be  adjudged  "the  fair  and  equitable 
value."  Capitalization  of  the  earnings  will  not,  because  that  implies 
a  continuance  of  (earnings,  and  a  continuance  of  earnings  rests  upon  a 
franchise  to  operate  the  waterworks.  The  original  cost  of  the  con- 
struction cannot  control,  for  "original  cost"  and  "present  value"  are 
not  equivalent  terms.  Nor  would  the  mere  cost  of  reproducing  the 
waterworks  plant  be  a  fair  test,  because  that  does  not  take  into  account 


KANSAS  CITY,   WATERWORKS  CASE  311 

the  value  which  flows  from  the  established  connections  between  the 
pipes  and  the  buildings  of  the  city.  It  is  obvious  that  the  mere  cost  of 
purchasing  the  land,  constructing  the  buildings,  putting  in  the  ma- 
chinery, and  laying  the  pipes  in  the  streets  —  in  other  words,  the  cost 
of  reproduction  —  does  not  give  the  value  of  the  property  as  it  is  to-day. 
A  completed  system  of  waterworks,  such  as  the  company  has,  without 
a  single  connection  between  the  pipes  in  the  streets  and  the  buildings  of 
the  city,  would  be  a  property  of  much  less  value  than  that  system  con- 
nected, as  it  is,  with  so  many  buildings,  and  earning,  in  consequence 
thereof,  the  money  which  it  does  earn.  The  fact  that  it  is  a  system  in 
operation,  not  only  with  a  ca;  acity  to  supply  the  city,  but  actually 
supplying  many  buildings  in  the  city,  —  not  only  with  a  capacity  to 
earn,  but  actually  earning,  — makes  it  true  that  "the  fair  and  equit- 
able value"  is  something  in  excess  of  the  cost  of  reproduction.  The 
fact  that  the  company  does  not  own  the  connections  between  the  pipes 
in  the  streets  and  the  buildings  —  such  connections  being  the  property 
of  the  individual  property  owners  —  does  not  militate  against  the 
proiDOsition  last  stated,  for  who  would  care  to  buy,  or  at  least  give  a 
large  price  for,  a  waterworks  system  without  a  single  connection  be- 
tween the  pipes  in  the  streets  and  the  buildings  adjacent.  Such  a 
system  would  be  a  dead  structure,  rather  than  a  living  and  going 
business.  The  additional  value  created  by  the  fact  of  many  connections 
with  buildings,  with  actual  supply  and  actual  earnings,  is  not  repre- 
sented by  the  mere  cost  of  'making  such  connections.  Such  connec- 
tions are  not  compulsory,  but  depend  upon  the  will  of  the  property 
owners,  and  are  secured  only  by  efforts  on  the  part  of  the  owners  of  the 
waterworks,  and  inducements  held  out  therefor.  The  city,  by  this 
purchase,  steps  into  possession  of  a  waterworks  plant,  —  not  merely 
a  completed  system  for  bringing  water  to  the  city,  and  distributing  it 
through  pipes  placed  in  the  streets,  but  a  system  already  earning  a 
large  income  by  virtue  of  having  secured  connections  between  the  pipes 
in  the  streets  and  a  multitude  of  private  buildings.  It  steps  into 
possession  of  a  property  which  not  only  has  the  ability  to  earn,  but  is  in 
fact  earning.  It  should  pay  therefore  not  merely  the  value  of  a  system 
which  might  l)e  made  to  earn,  but  that  of  a  system  which  does  earn. 
Our  effort  has  been  to  deduce  from  the  volume  of  testimony  that  which, 
in  this  view  of  the  situation,  can  be  safely  adjudged  "the  fair  and 
equitable  value."  The  original  cost  of  the  works  is  not  accurately 
and  satisfactorily  shown.  If  it  would  have  assisted  us  in  reaching  a 
conclusion,  —  if,  in  consequence  of  our  ignorance  thereof,  we  have  not 
placed  the  value  upon  this  property  which  it  deserves,  —  the  company 
is  alone  to  blame,  for  by  the  production  of  its  books  it  could  have 
clearly  shown  the  actual  cost  of  every  part  and  of  the  whole  of  this 
property.  There  is  a  large  amount  of  testimony  as  to  the  probable 
cost  of  reproducing  the  system,  to  which  strenuous  objection  is  made 


312  ENGINEERING  VALUATION 

on  the  ground  of  an  alleged  temporary  and  extreme  depression  in  the 
cost  of  labor  and  material.  We  have  before  us  the  estimate  placed  by 
two  gentlemen  of  experience  and  capacity,  appointed  as  commis- 
sioners, with  direction  to  report  "the  fair  and  equitable  value";  but 
neither  by  the  order  of  the  court,  appointing  them,  nor  bj^  their  report, 
are  we  advised  as  to  what  they  considered  a  criterion  of  the  present 
"fair  and  equitable  value."  If  they  added  anything  beyond  what  in 
their  judgment  was  the  reasonable  cost  of  reproduction,  we  are  not 
advised  as  to  how  much  they  added,  or  what  they  took  into  considera- 
tion in  making  such  addition.  We  have  the  fact  of  liens  placed  upon 
the  property,  to  the  extent  of  $3,000,000,  with  the  qualified  approval  of 
the  city  officials.  We  have  also  the  statement  of  the  earnings,  and  the 
estimate  of  the  value  upon  the  basis  of  a  capitalization  of  those  earnings, 
amounting,  as  stated,  at  six  per  cent,  to  four  and  one  half  millions. 
Rejecting  the  latter  as  too  high,  and  the  cost  of  rciDroduction  as  too 
low,  and  taking  into  consideration  the  entire  history  of  the  transactions 
between  the  company  and  the  city,  from  its  commencement  to  the 
present  time,  we  have  sought  to  place  a  value  upon  the  property  as  it 
stands,  \\'ith  all  the  connections  already  made  between  the  pipes  and 
the  private  and  public  buildings,  and  with  the  work  which  it  is  in  fact 
doing  of  supplying  all  these  buildings  with  water,  and  receiving  pay 
therefor.  That  valuation,  after  much  discussion,  comparison  of 
figures,  and  readjustments,  we  have  all  agreed,  is  three  million  of 
doUars ;  and  in  reaching  this  result  we  have  excluded  from  our  estimate 
the  value  of  the  Jarboe  street  reservoir  property,  which,  as  we  under- 
stand the  testimony,  has  heretofore  been  paid  for  by  the  city. 

6.  In  its  cross  biU  the  city  has  made  claim  for  damages,  and  insisted 
that  the  watenvorks  system  does  not  come  up,  in  efficiency  and  com- 
pleteness, to  the  requirements  of  the  contract.  We  agree  with  the 
circuit  court,  after  reviewing  carefullj^  the  testimony,  that  the  city  is 
not  entitled  to  maintain  this  claim.  It  has  for  many  years  recognized 
and  accepted  this  waterworks  system  as  having  been  constructed  in 
full  compliance  with  the  demands  of  the  contract,  and  it  is  now  too  late 
to  repudiate  such  recognition. 

This  is  perhaps  all  that  is  necessary  for  us  to  say.  We  have 
stated  our  conclusions,  and  outlined  our  reasons  therefor.  Fur- 
ther than  that  we  are  unable  to  go,  without,  as  stated  in  the  open- 
ing, taking  more  time  than  the  circumstances  will  permit.  In  order 
to  close  as  far  as  possible  all  disputed  matters,  we  have  prepared 
the  form  of  a  decree  which  is  to  be  entered  by  the  circuit  court. 

This  case  is  accordingly  remanded  to  the  circuit  court,  with 
directions  to  vacate  its  former  decree,  and  in  lieu  thereof  to  enter 
the  following  decree,  to  wit: 


KANSAS  CITY,   WATERWORKS  CASE  313 

First.  It  is  ordered,  adjudged,  decreed,  and  determined  that  under 
the  act  of  the  legislature  of  the  state  of  Missouri  of  March  24,  1873, 
and  the  contract  evidenced  by  Ordinance  No.  10,524,  between  the 
National  Waterworks  Company,  of  New  York,  and  the  city  of  Kansas 
City,  Missouri,  which  act  and  ordinance  are  referred  to  in  the  pleadings 
in  this  case,  the  said  city  is  now  legally  bound  to  purchase  from  said 
company,  and  said  company  is  legally  bound  to  sell  to  the  said  city, 
the  full,  complete,  and  entire  waterworks  plant  and  appurtenances  by 
which  the  said  city  and  its  inhabitants  are  now  supplied  with  water, 
including  therein  that  portion  of  said  plant  situated  in  the  state  of 
Kansas,  and  commonly  known  as  the  "Quindaro  Supply  Works," 
and  the  flow  pipes  leading  therefrom,  as  well  as  that  portion  of  said 
works  which  is  situated  in  the  state  of  Missouri,  together  with  all  lots 
of  land,  buildings,  and  reservoirs  belonging  to,  or  in  any  wise  used  as  a 
part  of,  said  plant,  with  the  exception  mentioned  in  the  eleventh  para- 
graph of  this  decree,  and  everything  of  every  nature  pertaining  to  said 
waterworks  plant. 

Second.  That  said  city,  under  the  said  contract,  is  bound  to  pay  for 
said  complete  waterworks  plant  aforesaid,  and  the  said  company  is 
bound  to  receive  in  full  payment  therefor,  "the  fair  and  equitable 
value  of  the  whole  works,"  as  provided  in  said  contract  evidenced  by 
Ordinance  No.  10,524. 

Third.  The  court  finds,  adjudges,  and  decrees,  that  the  fair  and 
equitable  value  of  said  complete  and  whole  waterworks  plant,  excluding 
the  Jarboe  street  tract,  which  belongs  to  the  city,  is  three  million 
dollars,  and  that  said  city  is  legally  obligated  to  pay  that  sum  there- 
for. 

Fourth.  That  said  company  is  entitled  to  retain  the  possession,  use, 
and  control  of  the  whole  and  complete  waterworks  system  and  plant 
aforesaid  until  final  pajonent  therefor  shall  be  made  by  said  city  as 
hereinafter  provided ;  and  said  city  is  hereby  enjoined  from  interfer- 
ing with  such  possession,  use,  or  control  until  such  payment  is  made ; 
and  said  company,  on  its  part,  is  hereby  enjoined  from  refusing  or 
neglecting  to  supply  water  to  the  city,  and  from  refusing  or  neglecting 
to  provide  private  consumers  with  water,  as  heretofore  during  such 
period. 

Fifth.  It  is  further  ordered  and  decreed  that  on  or  before  the  1st  day 
of  December,  a.d.  1894,  the  said  company  shall  cause  to  be  executed, 
and  shall  deliver  to  the  clerk  of  this  court,  who  shall  hold  the  same  in 
escrow,  good  and  sufficient  deeds,  assigimients,  releases,  bills  of  sale, 
and  other  conveyances  whereby  the  whole  and  complete  waterworks 
system  and  plant  aforesaid,  including  that  portion  thereof  which  is 
situated  in  the  state  of  Kansas,  may  be  transferred  to  said  city  free 
and  clear  of  all  burdens,  obligations,  liens,  and  incumbrances  of  every 
kind,  save  the  lien  created  by  the  two  mortgages  executed  by  the  water- 


314  ,  EXGIXEERIXG   VALUATION 

worlcs  company,  respectively,  on  August  1,  18S3,  and  June  1,  1885, 
each  of  which  mortgages  secures  bonds  of  said  company,  said  to  be 
now  outstanding  in  the  sum  of  one  million  five  hundred  thousand 
dollars ;  that  said  deeds,  releases,  assigimients,  bills  of  sale,  or  other 
convej'ances  shall  be  retained  bj^  said  clerk,  but  said  clerk  shall  furnish 
full  and  complete  copies  of  all  such  instruments  to  the  city  or  its 
attorneys  of  record,  for  their  inspection. 

Sixth.  It  is  further  ordered  and  adjudged  that  after  the  execution 
and  deliver}'  to  the  clerk  of  the  deeds,  assigrmients,  releases,  and  bills 
of  sale  aforesaid,  the  said  city  shall  be  entitled  to  thirty  daj's  in  which 
to  except  to  the  sufficiency  of  such  conveyances ;  and  power  is  hereby 
reserved  to  hear  and  determine  such  exceptions,  and  to  make  all 
needful  orders  in  relation  thereto.  When  such  deeds,  assignments, 
releases,  and  bills  of  sale  shall  have  been  executed  and  filed  as  afore- 
said, and  after  the  approval  thereof  by  the  court,  if  the  same  shall  be 
excepted  to  by  the  city,  said  city  shall  thereupon  pay  to  the  clerk  of 
this  court  the  said  sum  of  three  million  dollars,  being  the  fair  and 
equitable  value  of  said  waterworks  plant  as  heretofore  assessed,  or  it 
shall  cause  the  same  to  be  so  paid.  Said  pajment  shall  be  made  to  said 
clerk  for  the  benefit  of  whom  it  may  concern,  and  power  is  hereby 
reserved  to  the  court  to  determine  who  are  entitled  to  said  fund  after 
the  same  shall  have  been  so  paid  into  the  court ;  and  power  is  also 
reserved  to  permit  any  person  or  persons  or  corporation  who  may 
hereafter  claim  to  have  a  legal  or  equitable  lien  upon  said  fund  to 
intervene  for  the  protection  of  his  or  their  interest. 

Seventh.  It  is  further  ordered  and  adjudged  that  upon  payment 
being  made  by  said  city  as  aforesaid  of  said  sum  of  three  million  dol- 
lars, and  of  the  hydrant  rentals  mentioned  in  paragraph  nine,  said 
clerk  shall  deliver  to  said  city  or  its  authorized  representatives  all 
deeds,  assignments,  releases,  bills  of  sale,  and  other  muniments  of  title 
then  held  b}'^  him  in  escrow ;  and  thereupon  said  city  shall  become 
vested  with  the  title  to  said  waterworks,  and  it  shall  forthwith  be 
entitled  to  the  exclusive  possession,  control,  use,  and  enjoyment  of  said 
entire  waterworks  system  and  plant,  and  to  all  revenues,  of  whatsoever 
nature,  thereafter  resulting  therefrom ;  and  said  waterworks  company 
shall  forthwith  surrender  the  possession  and  control  thereof  to  said 
city,  and  the  interest  of  said  company  therein  shall  thenceforth  cease 
and  determine. 

Eighth.  It  is  further  ordered,  adjudged,  and  decreed  that  said  city 
shall  have  the  right  to  enter  into  any  agreement  which  it  maj^  deem 
proper  for  th(!  assumption,  continuation  of  the  lieu,  payment,  or  can- 
cellation of  any  of  the  outstanding  mortgage  bonds,  aggregating  three 
million  dollars,  which  are  referred  to  in  paragraph  five  of  this  decree, 
and  that  any  arrangement  which  said  city  may  so  enter  into  with  the 
owners  and  holders  of  said  bonds,  which  shall  result  in  the  cancellation 


KANSAS  CITY,  WATERWORKS  CASE  315 

or  payment  of  any  thereof,  or  in  tlie  continuation  of  the  lien,  or  in  the 
assumption  of  any  thereof  by  the  city,  and  in  the  release  of  the  water- 
works com])any  from  its  obUgations  thereon,  shall  operate  jyvo  tanto  to 
discharge  said  city  from  its  obligation  to  pay  the  three  million  dollars 
as  provided  in  the  sixth  j^aragraph  of  this  decree ;  and,  for  the  purpose 
of  enabling  said  city  to  avail  itself  of  the  provisions  of  this  paragraph 
of  the  decree,  power  is  hereby  reserved  to  the  court  to  ascertain  here- 
after to  what  extent,  if  any,  said  bonds  have  been  canceled,  paid, 
continued,  assumed,  or  otherwise  discharged  by  agreement  between 
said  bondholders  and  the  city,  and  to  make  all  needful  orders  in  that 
behalf. 

Ninth.  It  is  further  ordered,  adjudged,  and  decreed  that  in  addition 
to  the  value  of  said  waterworks  plant,  fixed  and  to  be  paid  as  aforesaid, 
the  said  city  shall  also  pay  all  unpaid  hydrant  rentals  which  accrued 
prior  to  November  15,  1893,  'and  all  subsequently  accruing  hydrant 
rentals,  according  to  the  rate  heretofore  fixed  by  agreement  between 
said  city  and  company  until  such  time  as  the  said  city  shall  become 
entitled  to  the  possession  and  use  of  said  waterworks  by  virtue  of 
compliance  on  its  part  with  the  previous  provisions  of  this  decree. 
Until  the  last-mentioned  date,  said  waterworks  company  shall  be 
entitled  to  all  the  earnings  and  revenues  of  said  plant,  whether  derived 
from  individual  or  public  consumers ;  but  said  company,  on  its  part, 
shall  be  compelled,  during  said  period,  to  keejD  said  waterworks  plant 
in  good  repair,  and  shall  also  pay,  as  and  when  the  same  shall  mature, 
the  several  interest  installments  that  may  accrue  on  the  mortgage 
bonds  mentioned  in  paragraph  five  of  this  decree.  Said  payment  of 
hydrant  rentals,  as  well  as  the  assessed  value  of  the  works,  shall  be 
made  before  said  city  shall  assume  possession  and  control  of  said 
waterworks;  and  power  is  hereby  reserved  to  the  court  to  hereafter 
state  an  account,  if  necessary,  for  the  sum  due  for  hydrant  rentals, 
and  to  make  all  needful  orders  necessary  and  proper  to  enforce  this 
paragraph  of  the  decree. 

Tenth.  It  is  further  ordered,  adjudged,  and  decreed  that  the  city 
is  not  entitled  to  recover  from  said  company  any  sum  for  or  on 
account  of  any  of  the  several  claims  for  damages  set  up  in  its  cross 
bill,  and  as  to  said  claims  for  damages  said  cross  bill  is  hereby 
dismissed. 

Eleventh.  That,  conformably  to  the  consent  expressed  by  counsel  for 
both  parties  at  the  hearing,  the  property  described  in  the  pleadings  at 
"Kaw  Point  Pumping  Station,"  and  the  six  or  ten  acres  of  land,  more 
or  less,  connected  therewith,  now  owned  by  said  company,  shall  re- 
main its  property,  and  shall  not  be  conveyed  to  said  city  as  part  of 
said  water-works  plant.  The  value  of  said  Kaw  Point  pumping 
station  has  been  deducted  from  the  price  to  be  paid  for  the  complete 
works. 


316  ENGINEERING  VALUATION 

Twelfth.  It  is  further  adjudged  that  each  party  shall  pay  one  half 
of  the  costs  that  have  accrued  in  these  suits  up  to  the  entry  of  this 
decree. 

Thirteenth.  That  the  court  doth  now  reserve  to  itself  rtie  power  to 
make  any  further  order  or  orders  that  maj^  hereafter  be  found  neces- 
sary to  carry  this  decree  into  full  effect,  and  as  may  be  deemed  equitable 
and  just. 


Kennebec  Water  District  Case 

Kennebec  Water  District  v.  City  of  Waterville,  et  al. 
Report  from  supreme  judicial  court  of  Maine,  Kennebec  County. 

Action  by  the  Kennebec  water  district  against  the  city  of 
Waterville  and  others.  Case  reported.  Instructions  to  appraisers 
given. 

On  report.  Instructions  to  appraisers  given  by  the  court  to 
determine  the  valuation  of  property  of  the  Maine  Water  Com- 
pany, and  acquired  by  the  plaintiff  by  the  exercise  of  the  right  of 
eminent  domain.     Dec.  27,  1902. 

Water  Company  —  Eminent  Domain  —  Instructions  to  Ap- 
praisers— Franchise — Valuation — Damages — Evidence 

An  act  incorporating  the  plaintiff  district  authorized  it  to  acquire, 
by  the  exercise  of  the  right  of  eminent  domain,  "the  entire  plant, 
property  and  franchises,  rights  and  privileges  now  held  by  the 
Maine  Water  Company  within  said  district  and  the  towns  of 
Benton  and  Winslow."  The  act  further  provides  that  appraisers 
appointed  by  the  court,  "shall,  upon  hearing,  fix  the  valuation  of 
said  plant,  property  and  franchises  at  what  they  are  fairly  and 
equitably  worth,  so  that  said  Maine  Water  Company  shall  receive 
just  compensation  for  all  the  same,"  but  that,  "  before  a  commis- 
sion is  issued  to  the  appraisers,  either  party  may  ask  for  instruc- 
tions to  the  appraisers."  Both  parties  having  asked  for  instruc- 
tions, and  the  questions  of  law  arising  thereon  having  been  re- 
ported to  the  law  court,  the  court  is  of  opinion  that  the  appraisers 
should  be  instructed  in  accordance  with  the  following  principles : 

Instructions. 

1.  The  plaintiff,  if  it  takes  anything,  must  take  all  the  property  held 
by  the  Maine  Water  Company  in  the  Kennebec  water  district  and  in 
Benton  and  Winslow,  whether  specifically  named  in  the  act  or  not. 
This  includes  the  real  estate  or  other  property,  if  any,  not  connected 
with  the  water  system ;  it  includes  the  plant  or  physical  system ;  and 
it  includes  all  franchises,  rights,  and  privileges  held  by  the  water  com- 
pany, exercised  or  capable  of  being  exercised. 

2.  The  Maine  Water  Company  is  a  quasi  public,  or  public  service, 

317 


318  ENGINEERING  VALUATION 

corporation,  and  is  entitled  to  charge  reasonable  rates  for  its  services, 
and  no  more. 

3.  The  basis  of  all  calculation  as  to  the  reasonableness  of  rates  to  be 
charged  by  a  public  service  corporation  is  the  fair  value  of  the  property 
used  bj^  it  for  the  convenience  of  the  public. 

4.  At  the  same  time,  the  public  have  the  right  to  demand  that  the 
rates  shall  be  no  higher  than  the  services  are  worth  to  them,  not  in  the 
aggregate,  but  as  individuals. 

5.  Summarized,  these  elemental  principles  are  the  right  of  the  com- 
pany to  derive  a  fair  income,  based  upon  the  fair  value  of  the  property 
at  the  time  it  is  being  used  for  the  public,  taking  into  account  the  cost  of 
maintenance  or  depreciation,  and  current  operating  expenses,  and  the 
right  of  the  public  to  have  no  more  exacted  than  the  services  in  them- 
selves are  worth. 

6.  The  reasonableness  of  the  rate  may  also  be  affected,  for  a  time,  by 
the  degree  of  hazard  to  which  the  original  enterprise  was  naturally 
subjected ;  that  is,  such  hazard  only  as  may  have  been  justly  contem- 
plated by  those  who  made  the  original  investment,  but  not  unforeseen 
or  emergent  risks.  And  such  allowance  may  be  made  as  is  demanded 
by  an  ample  and  fair  public  policy.  If  allowance  be  sought  on  account 
of  this  element,  it  would  be  permissible  at  the  same  time  to  inquire 
to  what  extent  the  company  has  already  received  income  at  rates  in 
excess  of  what  would  otherwise  be  reasonable,  and  this  has  alreadj'^  re- 
ceived compensation  for  this  hazard. 

7.  The  franchises  granted  to  the  Waterville  Water  Company  by 
chapter  141,  Priv.  &  Sp.  Laws  1881,  as  amended  by  chapter  59,  Priv.  & 
Sp.  Laws  1887,  and  chapter  14,  Priv.  &  Sp.  Laws  1891,  and  to  the  Maine 
Water  Company  by  chapter  352,  Priv.  &  Sp.  Laws  1893,  are  not  ex- 
clusive. Neither  are  they  perpetual  and  irrevocable.  They  are  subject 
to  legislative  repeal.  In  fixing  the  value  of  the  franchises,  both  of  these 
considerations  are  entitled  to  their  just  weight.  If  the  business  of 
the  company  is  now  practically  exclusive,  in  that  it  has  no  competitor, 
that  fact,  also,  may  and  should  be  considered  by  the  appraisers  when 
they  fix  the  value  of  the  property  of  the  company  as  a  going  concern. 

8.  In  determining  the  present  value  of  the  company's  plant,  the  actual 
construction  cost  thereof,  with  proper  allowances  for  depreciation,  is 
legal  and  competent  evidence,  but  it  is  not  conclusive  or  controlling. 

9.  The  request  that  "under  no  circumstances  can  the  value  of  the 
plant  be  held  to  exceed  the  cost  of  producing  at  the  present  time  a 
plant  of  equal  capacity  and  modern  design"  should  not  be  given. 
Among  other  things,  it  leaves  out  of  account  the  fact  that  it  is  the  plant 
of  a  going  concern,  and  seeks  to  substitute  one  of  the  elements  of  value 
for  the  measure  of  value  itself. 

10.  The  actual  rates  which  may  have  been  charged  heretofore,  and 
the  actual  earnings,  are  both  admissible  and  material  in  determining 


KENNEBEC  WATER  DISTRICT  CASE  319 

the  value  of  the  plant.  The  value  of  the  evidence,  however,  will 
depend  upon  whether  the  appraisers  shall  find  that  the  rates  charged 
have  been  reasonable. 

11.  The  quality  of  water  furnished  and  of  the  service  rendered,  and 
the  fitness  of  the  plant  and  of  the  source  of  water  supply  to  meet 
reasonable  requirements  in  the  present  and  future,  are  material  upon 
the  question  of  present  value. 

12.  The  appraisers  should  regard  the  franchises  of  the  company  as 
entitling  it  to  continue  business  as  a  going  concern,  but  subject  to  all 
proper  legal  duties  governing  public  service  companies. 

13.  Faithfulness  or  unfaithfulness  shown  by  the  water  company  in 
the  past  in  the  performance  of  public  duty  to  furnish  pure  water  at 
reasonable  rates  is  not  a  proper  matter  for  consideration.  It  is  the 
franchise  as  it  now  exists  which  is  to  be  taken  and  paid  for. 

14.  The  liability  of  the  company  to  legal  forfeiture  of  its  franchises 
on  account  of  past  unfaithfulness  and  misbehavior  is  not  to  be  con- 
sidered. 

15.  If  the  w^ater  company  and  its  predecessors  have  actually  received 
more  than  reasonable  rates  hitherto,  the  excess  cannot  be  deducted 
from  the  amount  to  which  the  company  would  otherwise  be  entitled. 

16.  No  compensation  can  be  allowed  to  the  Maine  Water  Company 
for  incidental  damages  to  its  other  property  having  no  physical  connec- 
tion with  or  contiguity  to  that  taken,  and  having  no  relations  with  it 
except  those  which  grow  out  of  common  ownership,  nor  for  the  impair- 
ment of  the  economy  and  efficiency  of  administration  which  are  obtained 
by  the  combination  of  many  water  systems  under  one  management. 

17.  The  real  estate  or  other  outside  property  not  directly  connected 
with  the  water  system  should  be  appraised  at  its  fair  market  value, 
not  at  forced  sale,  but  at  what  it  is  fairly  worth  to  the  seller,  under 
considerations  permitting  a  prudent  and  beneficial  sale  thereof. 

18.  The  appraisers  may  properly  consider  what  the  existing  system 
can  be  reproduced  for.  But  the  cost  of  reproduction  will  not  be  con- 
clusive.    It  will  be  evidence  having  some  tendency  to  prove  present 

value.     The  inquiry  along  the  line  of  reproduction  should  be  limited 
to  the  replacing  of  the  present  system  by  one  substantially  like  it. 

19.  In  estimating  even  the  structure  value  of  the  plant,  allowance 
should  be  made  for  the  fact,  if  proved,  that  the  company's  water  system 
is  a  going  concern,  with  a  profitable  business  established,  and  with  a 
present  income  assured  and  now  being  earned. 

20.  So  far  as  the  water  system  is  practically  exclusive,  the  element 
of  good  will  should  not  be  considered. 

21.  In  fixing  structure  value,  while  considering  the  fact  that  the 
system  is  a  going  concern,  the  appraisers  should  also  consider,  among 
other  things,  the  present  efficiency  of  the  system,  the  length  of  time 
necessary  to  construct  the  same  de  novo,  and  the  time  and  cost  needed 


320  EXGINEERIXG  VALUATION 

after  construction  to  develop  such  new  system  to  the  level  of  the  present 
one  in  respect  to  business  and  income,  and  the  added  net  income  and 
profits,  if  any,  which  by  its  acquirement  would  accrue  to  a  purchaser 
during  the  time  required  for  such  new  construction,  and  for  such 
development  of  business  and  income.  But  these  are  to  be  considered 
"among  other  things."  The}'  are  not  controlling.  Their  weight  and 
value  must  depend  upon  the  varying  circumstances  of  each  particular 
case. 

22.  In  addition  to  structure  values,  the  appraisers  should  allow  just 
compensation  for  all  the  franchises,  rights,  and  privileges  to  be  taken. 

23.  The  value  of  the  franchise  depends  upon  its  net  earning  power, 
present  and  prospective,  developed  and  capable  of  development,  at 
reasonable  rates ;  and  the  value  to  be  assessed  is  the  value  to  the  seller, 
and  not  to  the  buj^er. 

24.  In  considering  prospective  development  of  the  use  of  a  franchise, 
consideration  must  also  be  had  of  the  fact  that  further  investment 
may  be  necessary  to  develop  the  use,  and  of  the  further  fact  that  at  any 
stage  of  development  the  owner  of  the  franchise  will  be  entitled  to 
charge  only  reasonable  rates  under  the  conditions  then  existing. 

25.  Subject  to  all  the  foregoing  limitations,  the  owner  is  entitled 
to  any  appreciation  due  to  natural  causes. 

26.  The  fact  that  the  franchises  are  to  be  taken  in  no  respect  impairs 
their  value  for  the  purposes  of  appraisal. 

27.  As  to  the  property  to  be  taken,  both  plant  and  franchises  are 
to  be  appraised,  having  in  view  their  value  as  property  in  itself,  and 
their  value  as  a  source  of  income.  There  are  these  elements  of  value, 
but  only  one  value  of  one  entire  property  is  to  be  appraised  in  the  end. 
These  elements  necessarily  shade  into  each  other. 

28.  The  capitalization  of  income,  even  at  reasonable  rates,  cannot 
be  adopted  as  a  sufficient  or  satisfactory  test  of  present  value.  But 
while  not  a  test,  present  and  probable  future  earnings  at  reasonable 
rates  are  properly  to  be  considered  in  determining  the  present  value 
of  the  system. 

29.  The  appraisers  should  be  instructed  to  receive  and  consider  all 
evidence  offered,  so  far  as  admissible  under  the  general  rules  of  law, 
which  is  pertinent  under  the  rules  stated  in  the  requests  of  the  parties, 
so  far  as  they  have  been  approved,  and  as  limited  or  explained,  in  the 
opinion  of  the  court. 

(Official.) 


Montgomery  County  v.  Schuylkill  Bridge  Co. 

Proceedings  to  declare  a  bridge  across  the  Schuylkill  river  belong- 
ing to  the  Schuylkill  Bridge  Company,  a  county  bridge,  the  report 
of  viewers  to  assess  damages  allowed  the  company  $50,000,  from 
which  the  company  appealed  to  the  court  of  common  pleas  of 
Montgomery  County,  a  change  of  venue  being  afterwards  taken  to 
Bucks  County.  Here  a  verdict  and  judgment  were  entered  for 
$111,322.12,  and  defendant  took  a  writ  of  error. 

(Supreme  Court  of  Pennsylvania.   May  25, 1885.    20  Atl.  Rep.  407.) 

Syllabus. 

Toll  Bridge  —  Taking  for   Public   Use  —  Measure   of 

Damages 

1.  Where  a  private  toll  bridge  is  taken  for  public  use,  the  meas- 
ure of  damages  is  not  alone  the  cost  of  a  similar  bridge,  dimin- 
ished by  the  wear  and  tear,  but  the  value  of  the  franchise  to  take 
tolls  must  also  be  considered. 

2.  To  ascertain  the  value  of  the  franchise,  the  receipts  of  the 
company  in  past  years  may  be  shown,  but  it  is  proper  to  refuse  to 
extend  the  inquiry  back  for  more  than  five  years. 

3.  The  value  of  the  tollhouse,  and  also  of  a  canal  bridge  used 
as  an  approach  to  the  main  bridge,  may  be  included  as  damages. 

4.  In  proceedings  to  take  a  private  toll  bridge  for  public  use, 
the  principle  of  market  value  does  not  apply  in  determining  the 
measure  of  damages  as  the  property  taken  cannot  be  said  to  have 
a  market  value. 

5.  In  proceedings  to  take  a  private  toll  bridge  for  public  use, 
evidence  that  the  bridge  company  had  declared  larger  dividends 
than  allowed  by  law  is  immaterial. 


321 


San  Diego  Land  and  Title  Co.  v.  City  of  National  City  et  al. 

No.  25     (May  22,  1899)     (19  Sup.  Ct.  Rep.  804) 

Waters  and  Water  Courses  —  Notice  —  Fixing  Rates  — 
Hearing  —  Constitutional  Law  —  Reasonableness  of 
Rates  —  Just  Compensation  —  Losses 

Syllabus. 

L  Const.  Cal.  art.  14,  §  1,  requiring  water  rates  to  be  fixed 
by  the  legislative  bodies  of  municipalities  by  ordinance  in  February 
and  July  of  each  year,  and  Act  Cal.  March  7,  1881,  §  2,  making  it 
the  duty  of  such  bodies  at  least  thirty  days  prior  to  January  15th 
of  each  year  to  obtain  from  water  companies  a  detailed  statement 
showing  the  names  of  rate  payers,  the  amount  paid  by  each  during 
the  preceding  year,  and  all  revenue  derived  from  all  sources  and 
expenditures  for  supplying  water,  dispense  with  necessity  of  a 
formal  notice  to  parties  interested  as  to  the  day  on  which  the  rates 
are  to  be  fixed. 

2.  Sufficient  provision  for  a  hearing  as  to  the  fixing  of  water 
rates  is  made  by  Act  Cal.  March  7,  1881,  §  2,  making  it  the  duty 
of  the  legislative  bodies  of  municipalities  to  require  water  com- 
panies at  least  thirty  days  before  January  15th  of  each  year  to 
furnish  detailed  statements  showing  the  names  of  rate  payers, 
amount  paid  by  each  during  the  preceding  year,  and  all  revenue 
derived  from  all  sources  and  expenditures  for  supplying  water. 

3.  Where,  prior  to  the  passage  of  an  ordinance  fixing  water  rates 
by  a  municipality,  the  water  company,  under  Act  Cal.  March  7, 
1881,  was  required  to  make  a  detailed  statement  of  its  business 
and  financial  condition,  and  the  subject  of  rates  was  considered  in 
conferences  })etween  the  local  autliorities  and  the  officers  of  the 
water  company,  it  will  be  presumed  that  the  case  of  the  water 
company  as  to  the  justice  of  the  rates  fixed  was  fully  considered 
before  the  ordinance  fixing  the  rate  was  passed. 

4.  Courts  will  not  interfere  with  the  collection  of  rates  estab- 
lished under  legislative  sanction,  unless  they  are  so  plainly  and 
palpabl}'  unreasonable  as  to  make  their  enforcement  equivalent  to 

322 


COVINGTON  TURNPIKE  ROAD  CO.  v.  SANDFORD     323 

the  taking  of  property  for  public  use  without  such  compensation,  as, 
under  all  the  circumstances,  is  just,  both  to  the  owner  and  the 
public. 

5.  A  contention  that,  in  ascertaining  whether  water  rates  are  just, 
the  court  should  take  into  consideration  the  cost  of  the  plant,  the 
cost  per  annum  of  operating  the  plant,  including  interest  on  money 
borrowed,  and  reasonably  necessary  to  be  used  in  constructing 
the  same,  the  annual  depreciation  from  use  of  the  plant,  and  a 
fair  profit  over  and  above  such  charges  for  services,  is  defective 
in  not  requiring  the  real  value  of  the  property  and  the  fair  value 
in  themselves  of  the  services.  Just  compensation  is  a  fair  return 
upon  the  reasonable  value  of  the  property  at  the  time  it  is  being 
used  by  the  public. 

6.  Losses  to  a  water  company  arising  from  the  distribution  of 
water  to  consumers  outside  of  the  city  are  not  to  be  considered  by 
a  municipality  in  fixing  the  rates  of  a  water  company,  only  a  part 
of  whose  system  is  within  the  municipality. 

Appeal  from  the  Circuit  Court  of  the  United  States  for  the 
Southern  District  of  California. 


Covington  and  L.  Turnpike  Road  Co.  et  al.  v.  Sandford  et  al. 

No.  50.     (December  14,  1896.)     (17  Sup.  Ct.  Rep.  198.) 

Turnpike  Companies  —  Exemption  from  Legislation  Reduc- 
ing Tolls  —  Sufficiency  of  Pleadings  —  Federal  Ques- 
tion —  Validity  of  Statute  Reducing  Tolls 

Syllabus. 

1.  The  fact  that  a  turnpike  company,  claiming  under  its  charter 
exemption  from  legislation  reducing  its  rates  of  toll  below  a  cer- 
tain limit,  has  collected  tolls  according  to  reduced  rates  fixed 
by  a  subsequent  statute,  is  not  a  recognition  by  the  company 
of  the  right  of  the  legislature  to  amend  or  repeal  its  charter  at 
will. 

2.  A  statute  dividing  a  turnpike  company  into  two  distinct 
corporations,  controlling  different  portions  of  the  road,  and  provid- 
ing that  each  shall  retain  "all  the  powers,  rights,  and  capacities" 
granted  by  the  charter  of  the  original  company,  does  not  pass  to 
the  new  companies  a  right  of  exemption  from  legislative  control 
of  tolls  which  was  reserved  to  the  original  company  by  its  charter. 


324  ENGINEERING  VALUATION 

3.  A  statute  making  such  an  unreasonable  reduction  in  the 
rates  of  toll  charged  by  a  turnpike  company  as  will  prevent  it, 
out  of  its  receipts,  from  maintaining  its  road  in  proper  condition 
for  public  use,  or  from  earning  any  dividend  on  its  stock,  is  repug- 
nant to  the  constitutional  provision  that  no  person  shall  be  de- 
prived of  property  without  due  process  of  law. 

4.  In  an  action  to  enjoin  a  turnpike  company  from  charging 
tolls  in  excess  of  the  rates  fixed  by  a  certain  statute,  the  company 
set  out  in  its  answer  the  average  annual  recepits  and  expenses 
for  several  years  prior  to  the  statute,  and  alleged  that  its  net 
earnings  for  those  years  had  not  allowed  dividends  greater  than 
4  per  cent ;  that  the  statute  in  question  reduced  the  rates  50  per 
cent  below  those  before  allowed  by  law ;  and  that  such  reduction 
would  so  diminish  the  income  of  the  company  that  it  could  not 
maintain  its  road,  meet  ordinary  expenses,  and  earn  any  dividend 
whatever.  Held,  that  these  allegations  were  sufficient,  assuming 
them  to  be  true,  to  raise  the  question  whether  the  statute  deprived 
the  defendant  of  its  property  without  due  process  of  law. 

5.  Where  a  party  to  an  action  in  a  state  court  specially  claims 
a  right  under  the  constitution  or  laws  of  the  United  States,  the 
decision  of  the  state  court  as  to  the  sufficiency  of  the  allegations 
to  present  such  claim  is  not  conclusive  upon  the  Federal  supreme 
court. 

6.  A  statute  reducing  the  tolls  charged  by  a  turnpike  company 
below  those  prescribed  by  general  statute  for  other  turnpike 
companies  in  the  state  does  not  necessarily  deny  to  it  the  equal 
protection  of  the  laws.  The  circumstances  of  each  company  must 
determine  what  rates  of  toll  will  give  it  such  compensation  for  the 
use  of  its  property  as  will  be  just  to  it  and  the  public. 

In  Error  to  the  Court  of  Appeals  of  the  State  of  Kentucky. 


Monongahela  Navigation  Co.  v.  United  States 

No.  722.     (March  27,  1893.)     (13  Sup.  Ct.  Rep.  622.) 

Eminent    Domain  —  Compensation  —  Constitutional    Law 
—  Franchises  —  Vested  Rights 

Syllabus. 

1.  The  question  as  to  what  is  "just  compensation"  for  private 
property  taken  for  public  use  is  a  judicial,  and  not  a  legislative, 
question ;   and  the  provision  in  the  act  authorizing  the  condemna- 


MONONGAHELA  NAVIGATION  CO.  v.  UNITED  STATES    325 

tion  of  a  lock  and  dam  belonging  to  the  Monongahela  Navigation 
Company  (25  St.  at  Large,  p.  411),  "that  in  estimating  the  sum 
to  be  paid  by  the  United  States  the  franchise  of  said  corporation 
to  take  tolls  shall  not  be  considered  or  estimated,"  does  not  pre- 
clude the  court  from  giving  compensation  for  such  franchise. 

2.  The  only  authority  which  the  United  States  has  to  condemn 
a  lt!)ck  and  dam  belonging  to  a  corporation  chartered  by  a  state  is 
derived  from  the  power  to  regulate  interstate  and  foreign  commerce; 
and  such  power  must  always  be  subject  to  the  obligation  imposed 
by  the  fifth  amendment  to  make  "just  compensation"  for  private 
property  taken  for  public  use. 

3.  The  power  of  congress  over  waterways  connected  with  the 
great  rivers  of  the  country  is  supreme  whenever  it  chooses  to  exer- 
cise the  same,  but  before  it  has  acted  the  legislative  power  of  the 
state  within  whose  borders  the  stream  flows  is  competent  to  charter 
a  corporation  to  improve  the  same,  and  to  give  it  a  franchise  to 
collect  tolls.  A  franchise  thus  granted  is  a  vested  right,  and  if 
congress  thereafter,  by  condemnation,  takes  such  improvements, 
it  is  bound  to  make  just  compensation  for  the  value  of  the  fran- 
chise, as  well  as  for  the  physical  property  taken.  Bridge  Co. 
V.  United  States,  105  U.  S.  470,  distinguished. 

4.  The  fact  that  congress  possesses  supreme  power  does  not 
cause  a  grant  of  such  a  franchise  by  the  state  to  be  a  mere  license 
which  is  revoked  or  annulled  when  congress,  in  the  subsequent 
exercise  of  its  power,  takes  possession  of  the  improvement. 

Appeal  from  and  in  error  to  the  circuit  court  of  the  United  States 
for  the  western  district  of  Pennsylvania. 

Proceedings  by  the  United  States  to  acquire  a  lock  and  dam  of 
the  Monongahela  Navigation  Company,  situated  on  the  Monon- 
gahela river.  From  the  judgment  awarding  compensation  the 
navigation  company  appeals.     Reversed. 


Getting  V.  Kansas  City  Stockyards  Co.  et  al.  Higginson  v.  Same 

(Circuit  Court,  D.  Kansas,  First  Division.     Oct.  28,  1897.) 

Nos.  7427  and  7453.     (82  Fed  Rep.  850.) 
Syllabus. 
Commerce  —  Legislative  Regulations  —  Stockyards 

1.  A  stockyard  business,  located  in  a  large  city,  at  the  junction 
of  many  railroad  lines,  which  furnishes  the  only  proper  facilities 


326  EXGIXEERING  NAVIGATION 

for  the  unloading,  resting,  and  feeding  of  live  stock  in  transit,  and 
for  the  sale  of  cattle  within  said  city,  is  affected  with  a  public  use, 
so  as  to  be  subject  to  legislative  control,  and  the  proper  legislative 
body  may  prescribe  a  maximum  rate  of  compensation  for  the  care 
and  handling  of  stock  thereat. 

Interstate  Commerce  —  Stockyards  Business 

2.  It  is  doubtful  whether  the  business  of  a  stockyards  company, 
which  itself  neither  buys  nor  sells  live  stock,  but  merely  renders 
services  to  the  owners  thereof,  in  yarding,  feeding,  watering,  and 
weighing  the  animals,  constitutes  interstate  commerce,  though  a 
large  proportion  of  the  animals  come  to  its  yards  from  other  states, 
and  are  therefore  themselves  subjects  of  interstate  commerce. 
The  fact  that  a  particular  stockyard  extends  over  the  boundary 
line  between  two  states  does  not  make  the  business  there  carried 
on  interstate  commerce. 

Same  —  Regulation  by  State 

3.  Conceding  that  the  business  of  a  stockyards  company  in 
handling  live  stock  in  transit  from  other  states  is  so  intimately 
related  to  interstate  commerce  which  is  transacted  in  its  yards  by 
other  persons  that  congress  might  lawfully  prescribe  maximum 
charges  for  yarding,  feeding,  and  caring  for  stock  coming  from 
other  states,  yet  this  power  is  not  of  such  an  exclusive  character 
as  to  prevent  the  state  from  prescribing  such  rates,  in  the  absence 
of  any  legislation  on  the  subject  by  congress. 

Constitutional  Law  —  Due  Process  and  Equal  Protection 
—  Confiscation  —  Fixing  Compensation  for  Services 
Rendered 

4.  In  determining  whether  a  state  statute  prescribing  rates  of 
charges  by  a  stockyards  company  is  reasonable,  or  confiscatory, 
so  as  to  amount  to  a  taking  without  due  process  of  law,  or  the  denial 
of  the  equal  protection  of  the  laws,  a  prime  factor  is  the  valuation 
which  shall  be  placed  on  the  property  of  the  stockyards  company 
used  in  its  business  of  yarding  and  feeding  stock. 

Same 

5.  When  a  valuation  is  placed  on  property,  which  has  become 
affected  with  a  public  use,  for  the  purpose  of  ascertaining  whether 
the  maximum  rate  of  compensation  fixed  by  law  for  its  use  is 


KANSAS  CITY  STOCKYARDS  CO.  CASE  327 

reasonable  or  otherwise,  the  income  derived  therefrom  by  the  owner 
before  it  was  subjected  to  legislative  control  cannot  always  be 
accepted  as  a  proper  test  of  value,  because  the  charges  then  made 
may  have  been  excessive  and  unreasonable.  And,  when  the 
property  has  been  capitalized  by  issuing  stock,  neither  the  market 
value  nor  the  par  value  of  the  stock  can  be  accepted  in  all  cases 
as  a  proper  criterion  of  value,  because  the  stock  may  not  represent 
the  money  actually  invested,  and  because  the  property  may  have 
been  capitalized  mainly  with  reference  to  its  income-producing 
capacity,  on  the  assumption  that  it  was  ordinary  private  property, 
which  the  owner  may  use  as  he  pleases,  without  being  subject  to 
legislative  control.  On  the  other  hand,  the  owner  is  entitled  to  the 
benefit  of  any  appreciation  in  value  above  original  cost  resulting 
from  natural  causes,  such  as  improvements  made  in  the  vicinity, 
growth  of  the  town,  etc. 

Same 

6.  A  state  statute  prescribing  maximum  charges  to  be  made  by 
a  stockyards  company,  and  which  allows  an  income  of  5.3  per 
cent  annually  on  the  actual  value  of  the  property  used  for  stock- 
yards purposes,  or  of  4.6  per  cent  on  the  capitalized  value  of  the 
property  and  business,  is  not  confiscatory,  though  it  reduces  the 
previous  net  income  nearly  50  per  cent. 

Temporary  Injunction  —  Dismissal  of  Bill 

7.  In  a  suit  to  enjoin  the  enforcement  of  a  state  statute  pre- 
scribing maximum  charges  of  a  given  business,  on  the  ground  that 
it  amounts  to  an  unconstitutional  confiscation  of  property,  where 
the  questions  involved  are  doubtful,  the  court,  though  it  decides 
to  dismiss  the  bill,  will  grant  a  temporary  injunction  pending  a 
probable  appeal ;  it  appearing  that  the  enforcement  of  the  stat- 
ute meantime  would  produce  great  harm  to  the  complainant's 
business. 


328  ENGINEERING  VALUATION 

Smyth,  Attorney  General,  et  al.  v.  Ames  et  al.     Same  v.  Smith 
et  al.     Same  v.  Higginson  et  al 

Nos.  49-51.     (March  7,  1898.)     (18  Sup.  Ct.  Rep.  418.) 

Federal  Jurisdiction  —  Suit  against  State  Officers  —  Con- 
stitutional Law  —  Due  Process  and  Equal  Protection  — 
State  Regulation  of  Railroad  Charges 

Syllabus. 

1.  A  suit  against  individuals  for  the  purpose  of  preventing  them, 
as  officers  of  a  state,  from  enforcing  an  unconstitutional  statute 
to  the  injury  of  plaintiff's  rights,  is  not  a  suit  against  the  state, 
within  the  meaning  of  the  eleventh  amendment  to  the  Federal 
constitution. 

2.  A  railroad  corporation  is  a  person,  within  the  meaning  of  the 
fourteenth  amendment,  declaring  that  no  state  shall  deprive  any 
person  of  property  without  due  process  of  law,  nor  deny  to  any 
person  within  its  jurisdiction  the  equal  protection  of  the  law. 

3.  A  state  enactment,  or  regulations  made  under  authority 
thereof,  estabhshing  rates  for  the  transportation  of  persons  or 
property  by  railroad,  that  will  not  admit  of  the  carrier  earning 
such  compensation  as,  under  all  the  circumstances,  is  just  to  it 
and  to  the  public,  would  deprive  such  carrier  of  its  property  with- 
out due  process  of  law,  and  deny  to  it  the  equal  protection  of  the 
laws,  and  would,  therefore,  be  repugnant  to  the  fourteenth  amend- 
ment of  the  Constitution  of  the  United  States. 

4.  While  rates  for  the  transportation  of  persons  and  property 
within  the  limits  of  a  state  are  primarily  for  its  determination,  the 
question  whether  they  are  so  unreasonably  low  as  to  deprive  the 
carrier  of  its  property  "uithout  such  compensation  as  the  constitu- 
tion secures,  and  therefore  without  due  process  of  law,  cannot  be 
so  conclusively  determined  by  the  legislature  of  the  state,  or  by 
regulations  adopted  under  its  authority,  that  the  matter  may  not 
become  the  subject  of  judicial  inquiry. 

5.  While  railroads  may  not  discriminate  in  their  charges  against 
the  people  of  any  one  state,  they  are  not  necessarily  bound  to  give 
absolutely  the  same  rates  to  the  people  of  all  the  states ;  for  the 
kind  and  amount  of  business,  the  cost  thereof,  the  cost  of  construc- 
tion and  maintenance,  are  factors  which  determine  largely  the 
question  of  rates,  and  these  vary  materially  in  different  states. 

6.  When  a  state  undertakes  to  prescribe  maximum  rates  on 


SMYTH,  ATTORNEY  GENERAL,  v.  AAIES  329 

local  business  done  by  an  interstate  carrier,  it  must  do  so  with 
reference  exclusively  to  what  is  just  and  reasonable  as  between  the 
carrier  and  the  public  in  respect  of  domestic  business  alone ;  and 
interstate  business  cannot  be  made  to  bear  losses  resulting  from 
the  rates  prescribed  for  local  business. 

7.  If  a  railroad  company  has  bonded  its  property  for  an  amount 
that  exceeds  its  fair  value,  or  if  its  capitalization  is  largely  fic- 
titious, it  may  not  impose  upon  the  public  the  burden  of  increased 
rates,  necessary  to  realize  profits  on  this  fictitious  capitalization; 
but  the  basis  of  all  calculations  as  to  the  reasonableness  of  rates 
must  be  the  fair  value  of  the  property  used  by  the  company  for 
the  convenience  of  the  public.  In  ascertaining  this  value,  the 
original  cost  of  construction,  the  amount  expended  in  permanent 
improvements,  the  amount  and  market  value  of  its  bonds  and  stock, 
the  present  as  compared  with  the  original  cost  of  construction, 
the  probable  earning  capacity  of  the  property  under  particular  rates 
prescribed  by  statute,  and  the  sum  required  to  meet  operating 
expenses,  are  all  matters  for  consideration,  and  are  to  be  given 
such  weight  as  may  be  just  and  right  in  each  case. 

8.  The  Nebraska  law  of  April  12,  1893,  to  regulate  railroads, 
classifj'  freights,  and  fix  maximum  rates  for  transportation  of 
freights,  is  void  as  to  the  particular  rates  prescribed,  as  depriving 
the  companies  of  their  property  wthout  due  process  of  law,  and 
deming  them  the  equal  protection  of  the  laws,  contrary  to  the 
fourteenth  amendment  to  the  Federal  constitution. 

Appeals  from  the  Circuit  Court  of  the  United  States  for  the 
District  of  Nebraska. 


BIBLIOGRAPHY 

Railroad  Valuation 

"The  Appraisal  of  Plants  for  Public  Service,"  Nicholas  S.  Hill,  Jr.,  The 

Engineering  Record,  June  8,  1901. 
"The  Value  of  Railways  and  Their  Capitalization,"  H.  T.  Newcomb, 

Railroad  Gazette,  Aug.  29,  1902. 
"The  Census  Office  Railroad  Valuations"  (editorial),  Railroad  Gazette, 

Sept.  1,  1905. 
"Railroad  Taxes  and  Plans  for  Ascertaining  the  Fair  Valuation  of  Railroad 

Propert}',"  The  Raihvay  Age,  Sept.  8,  1905. 
"Railroad  Valuations  in  State  Reports,"  Professor  H.  M.  Bowman,  Rail- 
road Gazette,  Sept.  8,  1905. 
"The  Determination  of  Physical  Values,"  Clinton  S.  Burns,  M.  Am.  Soc. 

C.  E.,  The  Engineering  Record,  Sept.  16,  1905. 
"Valuations  of  Railroad  Property,"  Henry  Fink    (serial).  Railway  Age 

Gazette,  July  24,  1908. 
"The  Valuations  of  Railways  "  (serial),  Raihcay  Age  Gazette,  Jan.  22,  1909. 
"Some  Neglected  Factors  of  Fair  Valuations"  (editorial).  Railway  Age 

Gazette,  March  5,  1909. 
"Railwa}^  Capital  and  Values,"  W.  H.  Williams    (serial).  Railway  Age 

Gazette,  April  2,  1909. 
"Valuation    of    Street    Railway  Properties,"   Electric  Railway  Journal, 

June  19,  1909. 
"Commercial  Valuation  of  Railway  Operating  Property  in  the  United 

States,  1904,"  Bulletin  21,  U.S.  Bureau  of  Census. 
"Methods  Used  by  the  Railroad  Commission  of  Texas  Under  the  Stock 

and  Bond  Law,  in  Valuing  Railroad  Properties,"  R.  A.  Thompson, 

Trans.  A.  S.  C.  E.,  Vol.  LII,  p.  328  et.  seq. 

The  Washington  Appraisal,  "Report  to  the  Washington  Railroad  Com- 
mission on  the  Valuation  of  Railways  in  Washington,"  Halbert  P. 
Gillette,  Engineering  Contracting,  April  7,  1909. 

The  Wisconsin  Appraisal,  "Wisconsin  Railway  Valuation,"  W.  D.  Taylor, 

Bulletin  21,  U.  S.  Census,  p.  82. 
"The  Appraisment  of  the  Physical  Value  of  Wisconsin  Railways  for  the 

Purpose  of  Taxation,"   W.   D.   Taylor,   Engineering  News,   March 

31,  1904. 
"Discussion  on  Valuation  of  Railroad  Properties,"  W.  D.  Taylor,  Trans. 

A.  S.  C.  E.,  Vol.  LII,  p.  353. 

330 


BIBLIOGRAPHY  331 

"Report  of  the  Tax  Commission,"  W.  D.  Taylor,  "Report  of  the  Wiscon- 
sin Tax  Commission,"  1907,  p.  269. 

"The  Work  of  the  Joint  Engineering  Staff  of  the  Wisconsin  Tax  and 
Railroad  Commissions,"  W.  D.  Pence,  Jour.  W.  S.  E.,  Vol.  XIV, 
p.  73,  abstract  Engineering  News,  March  4,  1909. 

"The  Chicago  Appraisal,"  "  Report  to  the  Common  Council  on  Railroad 
Valuation." 

The  Michigan  Appraisal,  "Expert  Valuation  of  Railway  and  Other  Cor- 
porate Property jn  Michigan,"  E.  E.  R.  Trsitmsm,  Engineering  News, 
Dec.  20,  1900. 

"What  is  the  Value  of  a  Railroad  for  the  Purpose  of  Taxation,"  Chas. 
Hansel,  Railroad  Gazette,  April  19,  1907. 

"Michigan  Railroad  Appraisal  —  Valuation  of  Physical  Properties,"  M.  E. 
Cooley,  Bulletin  21,  U.  S.  Bureau  of  Census,  p.  76. 

"Michigan  Railroad  Appraisal,  Valuation  of  Non-physical  Elements  of 
Railway  Property,"  Professor  H.  C.  Adams,  Bulletin  21,  U.  S.  Bureau 
of  Census,  p.  78. 

The  Minnesota  Appraisal,  "Valuation  of  Railway  Property,"  A.  S.  Cutter, 

Yearbook  University  of  Minnesota,  1908. 
"Report  on  the  Valuation  of  Railways  in  Minnesota,"  Jan.,  1909,  Minn. 

State  Railroad  Comm. 
"Valuations  of  Railways  in  Minnesota,"  Railway  Age  Gazette,  Feb.  5, 

1909. 

The  Texas  Appraisal,  "Railroad  Franchise  Values  in  Texas,"  W.  H. 

Coverdale,  Railroad  Gazette,  Feb.  12,  1904. 
"  The  Valuation  of  Public  Service  Property,"  Henry  Earle  Riggs,  Trans. 

Am.  Soc.  C.  E.,  Nov.,  1910,  p.  1369. 

Waterworks  Valuations 

"Waterworks  Valuation  and  Fair  Rates,  in  the  light  of  the  Maine  Sup. 

Ct.   decision   in  the   Waterville   and   Brunswick   Cases,"   Leonard 

Mitcalf,  Trans.  A.  S.  C.  E.,  Vol.  LXIV,  p.  1.     See  this  paper,  p.  69, 

for  complete  bibliography  of  waterworks  valuation. 
"Computation  of  the  Values  of  Water  Powers,  and  the  Damages  Caused 

by  the  Diversion  of  Water  used  for  Power,"  Chas.  T.  Main,  Jour. 

N.  E.  W.  W.  Assoc,  Vol.  XXI,  p.  214,  Sept.,  1907. 
"Water  Rights,"  Richard  A.  Hale,  Jour.  N.  E.  W.  W.  Assoc,  Vol.  XXI, 

p.  214,  Sept.,  1907. 
"Damages  Caused  by  Diversion  of  Water  Power,"  Clemens  Herschel, 

Jour.  N.  E.  W.  W.  Assoc,  Vol.  XXI,  p.  214,  Sept.,  1907. 


332  BIBLIOGRAPHY 

"^'aluation  of  Water- Works  Property,"  Wynkoop  Kiersted,  Trans.  Am, 

Soc.  C.  E.,  Vol.  XXXVIII,  p.  115,  1897. 
"Valuation  of  Waterworks  Plants,"  Chas.  B.  Burdick,  Municipal  Journal 

and  Engineer,  Sept.  11,  1907,  p.  302. 

Depreciation 

"Depreciation,"  J.  W.  Alvord,  Proceedings,  Am.  Waterworks  Assoc, 
1903,  p.  473. 

"The  Appraisal  and  Depreciation  of  Waterworks,"  Wm.  H.  Bryan, 
Journal  Associated  Engineering  Societies,  Dec,  1907,  p.  336. 

"  Depreciation  of  Factories,"  Matheson. 

"  Depreciation,"  Floy,  Trans.  A.  I.  E.  E.,  June,  1911. 

"  Depreciation,  Renewal  and  Replacement  Accounts,"  by  Herbert  G. 
Stockwell ;  a  paper  read  at  the  annual  meeting  of  the  American  Asso- 
ciation of  Public  Accountants  at  Denver,  Col.,  Oct.  18-22,  1909. 

Miscellaneous 

"  Science  of  Money,"  by  Alexander  Del  Mar. 

Southerland  on  Damages. 

Chicago,  Traction  Valuation  Commission  Reports. 

Milwaukee  Three-cent  Fare  Case. 

Report  of  St.  Louis  Public  Service  Commission  on  Cost  of  Lighting  at 
St.  Louis. 

Reports  of  New  York  Public  Service  Commission,  First  and  Second  Dis- 
trict. 

Reports  of  Massachusetts  Gas  and  Electric  Light  Commission. 

Reports  of  Massachusetts  Railroad  Commission. 

Reports  of  Wisconsin  Tax  Commission. 

Reports  of  Wisconsin  Railroad  Commission. 

Report  of  the  Valuation  of  the  Cleveland  Railway. 


INDEX 


Accidents,  depreciation  due  to,  164. 
Accounts,  Schedule  of.  National  Electric 

Light  Assoc,  123,  124. 
Adams,  H.  C,  definition  of  commercial 
value,  82. 
depreciation  in  operating  expense,  152. 
method  of  computing  franchise  value 

for  Detroit,  250. 
valuation  for  determining  reasonaI)le- 
ness  of  price,  28. 
Alvord,  J.  W.,  definition  of  going  value, 

133,  140. 
Ames,  Smith,  Attorney  General,  et  al.  v., 

328. 
Amortization    Accounts,    N.    Y.    Public 

Service  Commission  on,  223. 
Amortization,  on  capital,  accrued,  223. 
capital,  219. 
definition  of,  219. 
development  expenses,  219. 
franchises  and  capital,  219. 
general,  223. 
intangible  property,  222. 
investment,  220. 
landed  capital,  224. 
leases,  219. 

long  and  short  term  franchises,  221. 
patents,  224. 

Treasury  Decision,  225. 
Apparatus,  gas,  in  generation  house,  list 

of,  128. 
Appraisal,  buildings,  52. 

and  condemnation  of  waterworks,  37. 
of    damages    to    a    developed    water 

power,  108. 
form  for  detailed,  summary  of,  46. 
form  for  final  summary  of,  47. 
form   of   summary   for  result   of  rail- 
road, 57. 
form  of  summary  for  telephone,  120. 
made  on  principle  of  eminent  domain, 

40. 
physical  property,  3 
of  telephone  properties,  Michigan,  119. 
time  taken  for,  131. 
Appraisements,    appreciations    must    be 
included  in,  16. 
cost  of  reproduction  basis  of  modern, 
14. 
Appraisers  requested  to  favor  parties,  11. 
Appraising  ballast,  track  laying  and  sur- 
facing, form  for,  68. 

333 


bridges,  form  for,  65. 

buildings,  different  methods  of,  54. 

forms  for,  52,  54. 

and  structures,  form  for,  72. 
cinder  pits,  form  for,  73. 
concrete  buildings,  method  of,  54. 
crossings  and  signs,  form  for,  69. 
culverts,  form  for,  67. 
dock  and  wharf  property,  form  for,  77. 
draw  bridges,  form  for,  64. 
electric  light  companies,  form  of  sum- 
mary for,   125. 
electric  light  plants,  form  of  summary 

for,  125. 
elevators  and  warehouses,  form  for,  75. 
engine    houses    and    turntables,    form 

for,  73. 
fencing  and  cattle  guards,  form  for,  68. 
freight  train  cars,  form  for,  79. 
frogs,  switches,  and  railroad  crossings, 

form  for,  66. 
fuel  stations,  form  for,  75. 
full  section  of  railroad,  form  for,  81 
gas  property,  127. 
form  of  summary  for,  127. 
general    material ;    blank    form,    form 

for,  80. 
general   office   buildings   and   fixtures, 

form  for,  72. 
grading,  form  for,  63. 
interlocking  plants,  form  for,  70. 
locomotives,  form  for,  79. 
miscellaneous  material,  form  for,  80. 
miscellaneous  structures,  form  for,  78. 
must  include  all  appreciations,  16. 
ore  docks,  form  for,  76. 
passenger  train  cars,  form  for,  79. 
pile  bridges  and  timber  trestles,  form 

for,  65. 
platforms,    walks,    paving    and    curb, 

form  for,  69. 
rails  and  mileage,  form  for,  67. 
railings,  form  for,  85. 
roadway  tools,  form  for,  68. 
shop  machinery  and  tools,  form  for,  74. 
signal  apparatus,  form  for,  70. 
station    building    and    fixtures,    form 

for,  71. 
stockyards  —  track  and    stock  scales, 

form  for,  78. 
stores  ;  supplies  and  material  in  stock, 

form  for,  82. 


334 


INDEX 


Appraising  street  railways,  form  for,  85. 
telegraph    and    telephone   lines,    form 

for,  71. 
ties,  form  for,  07. 
track  fastenings   and   other    material, 

form  for,  66. 
tunnels,  form  for,  63. 
water  stations,  form  for,  74. 
Appreciation,  factory  sites,  235. 
handling  of,  51. 

in  value  of  real  estate,  discussion,  50. 
of  land  values,  48. 
of  land    values.  Interstate  Commerce 

Commission,  235. 
sometimes  c(juals  depreciation,  191. 
should  be  treated  like  income,  51. 
Appreciations     must     be     included     in 

appraisements,   16. 
Architecture,    included    in     engineering, 

18. 

Ballast,  track  laj-ing  and  surfacing,  form 

for  appraising,  68, 
Betterments   chargeable   to   capital   ac- 
count, 161. 
Beverly  Gas  Case,  statement  of  Massa- 
chusetts Gas  and  Electric  Commis- 
sion, 253. 
Bibliography,  330. 
Boilers,  form  for  field  inventory,  96. 
Bonds  issued  for  physical  property,  13. 
should  not  exceed  amount  on  which 

earnings  will  pay  interest,  262. 
watered,  1. 
Boston  sliding  scale,  252. 
Bridges,  form  for  appraising,  65. 
Brokerage,  18. 

and  discount,  18. 
Bryan,  W.  H.,  definition  of  going  value, 

141. 
Buffalo  property,    valuation    of,    B.    J. 

Arnold,  4. 
Buildings,  appraisal  of,  52. 

concrete,  method  of  appraising,  54. 

different  methods  of  appraising,  54. 

form  for  preliminary  statement,  54. 

form  for  summary  of  appraisal,  55. 

forms  for  appraising,  52,  54. 

life  of,  205. 

measurement  of,  for  calculating  value, 

54. 
on  Pacific  Coast,  corrugated  iron,  54. 
and   structures,   form   for  appraising, 

72. 
U.    S.    government,    depreciation    al- 
lowance on,  204. 
Burdett,  E.  W.,  on  capitalization,  257. 

Capital    account,    betterments    charge- 
able to,  101. 
Capital,  amortization  of,  219. 


amortization  on  accrued,  223. 

cost  of  new  article  formerly  added  to, 

13. 
new,  additions  to  be  made  from,  not 

from  surplus,  252. 
returned  as  dividends,  222. 
Capitalization,  court  opinions,  256. 
E.  W.  Burdett  on,  254. 
of  franchises  not  allowed,  201. 
must  represent  actual  value  only,  252. 
not  determined  on  basis  of  net  earn- 
ings, 262. 
over,  1. 
should  bear  direct  relation  to  value, 

262. 
should  represent  original  cost,  12. 
Capitalize,  not  allowed  to  over,  10. 
Capitalized,  discount  cannot  be,  20. 
Capitalizing   costs  of  a  going   concern, 

legal,  252. 
Charges,  development,  and  service  value, 
35. 
development,  small  in  comparison  to 

physical  property,  81. 
overhead,    17. 

engineering  and  supervision  treated 

as,   17. 
M.  E.  Cooley,  Milwaukee,  22. 
in  Milwaukee,  21. 
on  N.  Y.  Subway  equipment,  21. 
on  Oregon  railways,  21. 
on  valuation  of  Michigan  railways, 
22. 
Checking,  class  of  men  for  listing  and, 

42. 
Chicago,  depreciation  on  railways  in,  193. 
divides   surplus   earnings    with    com- 
pany, 252. 
railway  property  maintained  at  85  per 

cent  of  new  value,  148. 
Traction  System,  renewals,  207-218. 
Cinder  pits,  form  for  appraising,  73. 
City  of  Knoxville  v.    Knox\dIle   Water 

Co.,  281. 
City  of  National  City,  San  Diego  Land 

and  Title  Co.  v.,  322. 
Class  of  men  for  listing  and  checking,  42. 
Classes  of  property  divided  for  listing, 

41. 
Classification,  forms  for,  43. 

of  inventory  left  to  office  force,  41. 
of  parts  to  make  hydroelectric  plant, 
110. 
Combinations  based  on  earning  value,  13. 
Commercial   value,   H.   C.  Adams'  defi- 
nition of,  82. 
Commissary     Department,     importance 

in  far  west,  116. 
Commissions,  Public  Utilities,  2. 
Conmion  carriers   must  show   deprecia- 
tion,  155. 


INDEX 


335 


Compensation,  rate  of,  fixed  by  law,  8. 
Compound  interest  tables,  177,  184. 
Concrete  buildings,  method    of  apprais- 
ing, 54. 
Condemnation  and   appraisal   of  water- 
works, 37. 
Condition  per  cent,  formula  for,  17G. 

tables,   185,   189. 
Connections,  house,  to  be  valued,  42. 
house,  not  owned  by  Company  valu- 
ing,  116. 
to  houses,  not  owned  by  Company,  30. 
Consolidated  Gas  Case,  prices  at  date  of 
appraisal  used,  14. 
rate  of  return,  252. 
reference  to  franchise  in,  241. 
Consolidated  Gas  Co.,  W.  R.  Wilcox,  v., 

264. 
Construction  cost  is  legal  evidence,  40. 
Construction,  in  hands  of  general  con- 
tractor, 17. 
interest  added  during,  39. 
insurance  during,  18. 
interest  during,    18. 
Contingencies,  18. 

Contractor,     general,     heavy     construc- 
tion in  hands  of,  17. 
Contractor's  profit,  34. 
Cooley,    M.    E.,    elements   of   deprecia- 
tion,  163. 
overhead  charges  in  Milwaukee,  22. 
in  valuation  of  Michigan  railways, 
22. 
Corporation  owes  existence  to  state,  10. 
Corporations,  remedy  for  relieving,  11. 
may    show  depreciation  as  deduction 

from  income,  155. 
result  of  combinations,  13. 
Corrugated    iron    buildings    on    Pacific 

Coast,  54. 
Cost,  bears  on  reasonableness  of  rates,  38. 
of  construction,  legal  evidence,  40. 
of    new    article     formerly    added    to 

capital,   13. 
of  property,  original,  12. 
original,  cannot  control,  29. 
reasonable  return  on,   13. 
represented  by  capitalization,  12. 
surplus  earnings   devoted  to  main- 
taining, 151, 
of  valuation,  131. 
Cost  of  reproduction  important  in  deter- 
mining good-will  value,  137. 
must     be    considered    in    a    way    hu- 
manely possible,  16. 
new,  basis  of  modern  appraisements, 
14. 
Cost  to  reproduce,  fair  value  in  excess 
of,  30. 
new  property,  4,  33. 
not  conclusive,  40. 


one     way     of     ascertaining     present 

value,  23. 
request  value  not  exceed,  40. 
Cotting    V.     Kansas     City    Stockyards 

Co.,  325. 
Court  decisions,  264,  328. 
on  earning  value,  139. 
on  going  concern  value,  139. 
on  good  will,  139. 
on  telephone  valuations,  121. 
Court  opinions,  on  capitalization,  256. 

on  railroad  valuation,  82. 
Court  references  to  franchise,  240. 
Covington  &  L.  Turnpike  Co.    v.  San- 
ford  et  al.,  323. 
Cravens,  W.,  depreciation  for  given  ser- 
vice, table,  202. 
depreciation  on  railways,  table,  201. 
Crossings  and  signs,   form   for  apprais- 
ing, 69. 
Culverts,  form  for  appraising,  67. 

Damage,    legislature  not  competent    to 

prescribe  rule  for,  39. 
Damage   to   water  power,    diversion   of 

flow,  108. 
points  determined,  109. 
produces  a  varying  amount  of  power, 

108. 
Damages    to    developed    water    power, 

appraisal  of,  108. 
to    waterworks,    for   property    taken, 

37. 
for  severance,  38. 
Decrepitude,    depreciation   due   to   age, 

called,  147,  155. 
Deferred     maintenance,     chargeable     to 

operating  expense,  161. 
definition  of,  148,  161. 
depreciation  due  to  neglect  of  repairs, 

147. 
estimate  of,  must  be  made  at  time  of 

appraisal,  161. 
Delano,  F.  A.,  says  there  is  no  deprecia- 
tion on  railroads,  152. 
Depreciation,    1. 

account,     municipal     plants     seldom 

have,  151. 
accounts,  for  railroads,  154. 
on  buildings,  U.  S.  Government  allow- 
ance, 204. 
charged    in    factories    in    good    years 

only,   162. 
classification,  168. 
common  carriers  must  show,  155. 
conceptual    starting     plant    reduced 

by,   17. 
corporations  may  show,  as  deduction 

from  income,  155. 
for    current    year    not    influenced    by 

past  practice,  154. 


336 


INDEX 


Depreciation  defined,  147. 

definition  of  terms  and  classes,  155. 
difficulty    of    separating    from    wear 

and  tear,  151. 
does  not  affect  machine  tools,  163. 
due  to  accidents,  164. 
due   to   development,    called   obsoles- 
cence, 147. 
due  to  growth,  called  inadequacy  or 

supersession,    147. 
due  to  inadequacy,  164. 
due  to  neglect  of  repairs,   called  de- 
ferred maintenance,  147. 
due  to  obsolescence,  164. 
due   to    old   age,   called    decrepitude, 

147. 
due  to  wear  and  tear,  163. 
due  to  wear  and  tear,  so  named,  147. 
on  electric  light  plant,  169. 
elements  of,  163. 
of  factories,  151. 

dependent  on  earnings,  193. 
fifty  per  cent  method,  159. 
forms  of,  35. 
formulas  for,  176. 
fund,  borrowing  from,  226. 

credited  to  surplus,  226. 

deposited  in  bank,  226. 

invested  in  securities,  226. 

receiver  of   Third  Avenue  Railroad 
declines  to  pro\ide,  162. 

or  reserves,  rulings  on,  by  Wisconsin 
Commission,  227,  228. 
funds,  classification  of,  226. 
on  gas  plant,  170. 
handling  of,  51. 
horse,  good  example  of,  148. 
on  large  railway,   199. 
lives  of  structures,  169. 
method  of  calculating,  168. 
method  of  diminishing  values,   170. 
Three-cent  Fare  Case,  Milwaukee,  198. 
note  on,  from  Knox\dlle    Water    Co. 

Decision,  148. 
not  properly  treated  in  past,  148. 
operating  expense,  152. 
operating    expense,    chargeable    with, 

161. 
on  power  plant,    169. 
public  service  corporations  must  show 

accounts  of,  155. 
question  of  value,  153. 
for    railroads,    Delano    says    there    is 

no.    152. 
of  railroads,  162. 
on    railroads    and    accrued    liability, 

chargeable  to  income,   152. 
of  railroads  divided  into  three  classes, 

1.52. 
of    railways    and    lighting    plants    in 

Great  Britain,  rules  for,  165. 


on  railways  in  Chicago,  193. 

on  railway.s,  table,  201. 

if    rate    proves    too   large    it    can    be 
decreased,  153. 

rates,   194,   198. 

rates  for  given  service,  table,  202. 

rates  of,  190. 

rates  of,  matter  of  opinion,  148. 

rates    on    municipal    plants,     Massa- 
chusetts,   192. 

repairs  balance,  151. 

reserves,    court    decisions    and    opin- 
ions, 231. 
discussion,  229. 

London     County     Council     v.     H. 
Edwards,  232. 

rules  in  Great  Britain,  basis  of  allow- 
ance,  105. 
cables,   166. 
cost  of  renewals,  165. 
cars  and  rolling  stock,  167. 
general,  167. 

overhead  equipment,   167. 
periodical  adjustment,  166. 
permanent  way  life,  165. 
plant  and  machinery,  165. 

rulings  on,   l)y  State  Railway  of  Ne- 
braska, 228. 

sinking  fund  method,  171. 

somewhat  equals  appreciation,  191. 

straight  line  method,  170. 

tables  of  diminishing  values,  172,  175. 

telephone  plant,  170. 
table,   203. 

telephone  property,  119. 

telephone  wires,  table,  202. 

track  and  rails,  191. 

Treasury  Decision  on,  149. 

treated  like  expense,  51. 

Wisconsin  gives  average  life  of  plants, 
193. 

Wisconsin  method,  condition  per  cent, 
192. 
Detailed    summary    of    appraisal,    form 

for,  46. 
Detroit,  method  of  computing  francliise 

value,  250. 
Development,  charges,  and  service  value, 
35. 

small  in  comparison  to  physical  pro- 
perty, 31. 
Development,  expense,  5,  25. 

expenses,  amortization  of,  219. 
Discount,    bond,    Public    Service    Com- 
missions say  must  not   be  charged 
to  construction,  19. 

and  brokerage,   18. 

cannot  be  cajiitalized,  20. 

on  stocks,  indefensible,  20. 
Distribution  System,  gas,  128. 

form  for  valuation  of,  118. 


INDEX 


33: 


Distribution  System  for  waterworks,  life, 
204. 
waterworks,  form  for  valuation  of,  118. 

Dividends,  capital  returned  as,  222. 

Dock  and  wharf  property,  form  for  ap- 
praising, 77. 

Draw  bridges,  form  for  appraising,  64. 

Earnings,   depreciation  of  factories  de- 
pendent on,  193. 
fair  proportion  chargeable  to  property, 

39. 
not     proper     basis     for     determining 

capitalization,  262. 
surplus,  Chicago  divides,  252. 
surplus,  devoted  to  original  cost,  151. 
Earning  value,    closely   allied   to   going 
value,  135. 
combinations  based  on,  13. 
court  decisions  and  other  references, 

139. 
in  Madison  Gas  Case,  showing  table, 
137. 
Elden,  Lord,  definition  of  good  will,    133. 
Electric  light  companies,  form    of    sum- 
mary for  appraising,  125. 
Electric  light  plant,  depreciation  on,  169. 
life  of,  205. 
valuing,  122. 

form  of  summary  for  appraising,  125. 
municipal,  rates  on,  Massachusetts,  192. 
Electric  railways,  life  of,  205. 
Elements  of  depreciation,  163. 
Elevators     and     warehouses,     form     for 

appraising,  75. 
Emergency  items,  18. 
Eminent    domain,    appraisal    made    on 
principle  of,  40. 
valuations    determined    under    princi- 
ples of,  38. 
Engine  houses  and  turntables,  form  for 

appraising,  73. 
Engineering,    includes  architecture   and 
supervision,  18. 
an  overhead  charge,  17. 
English  syndicate  method  of  determin- 
ing value  of  good  will,  133. 
Equipment,  list  of  power  plant,  95-106. 
of  power  plant,  life,  204 
of  telephone,  life,  206. 
Estimate  of  deferred  maintenance  must 

be  made  at  time  of  appraisal,  161. 
Expense,  development,  25. 
legal,   18. 
organization,  18. 

Factories,    charge   depreciation    in  good 

years  only,   162. 
dependent    on    earnings,    depreciation 

of,  193. 
depreciation  on,  151. 


difficulty    of    separating    depreciation 

from  wear  and  tear,  151. 
divided,  for  inventory,  42. 
Factory  property,  inventoried    by  shop 
force,  132. 
form  of  summary  for  valuing,   130. 
valuing,  129. 
Factory  sites,  appreciation  of,  235. 

value  of,  49. 
Factory,  valuation  of,  28. 
Fair  value,  excess  of  cost  to  reproduce, 

30. 
Fencing    and    cattle    guards,    form    for 

appraising,  68. 
Field  inventory,  of  boilers,  form  for,  96. 

of  turbines,  form  for,  114. 
Final  summary   of    appraisal,   form  for, 

47. 
Floy,  H.,  rates  of  depreciation,  194-198. 
Ford's   list    of    tangible    and    intangible 

property,  89-94. 
Form,  for  detailed  summary  of  appraisal, 
46. 
of  power  station  equipment,  105. 
for  final  summary  of  appraisal,  47. 
for  field  inventory  of  boilers,  96. 
of  boiler  feed  and  auxiliaries,  97. 
of  engines,  98. 

of  generators  and  motors,  99. 
of  hydroelectric  plant,  1 14. 
of  miscellaneous  electrical  apparatus, 

103. 
of  power  plant,  miscellaneous,  104. 
of  transformers,   102. 
of  storage  battery,  101. 
of  switchboards,  100. 
for  preliminary  building  statement,  54. 
for   summarizing   valuation   of   power 

plant,  106. 
value  of  hydroelectric  plant.  111. 
for  summary  of  building  appraisals,  55. 
for  use  in  appraising  ballast,  track 

laying  and  surfacing,  68. 
bridges,   65. 

buildings  and  structures,  72. 
cinder  pits,  73. 
crossings  and  signs,  69. 
culverts,  67. 

dock  and  wharf  property,  77. 
draw  bridges,  64. 
elevators  and  warehouses,  75. 
engine  houses  and  turntables,  73. 
fencing  and  cattle  guards,  68. 
freight  train  cars,  79. 
frogs,  switches  and  railroad  crossings, 

66. 
fuel  stations,  75. 
fuel  section  of  railroad,  81. 
general  material ;  blank  form,  80. 
grading,  63. 
interlocking  plants,  70. 


338 


INDEX 


Form,  for  locomotives,  79. 

miscellaneous  material,  80. 

miscellaneous  structures,  78. 

office  buildings  and  fixtures,    72. 

ore  docks,  76. 

passenger  train  cars,  79. 

pile  bridges  and  timber  trestles,  65. 

platforms,  walks,  paving  and  curb, 
69. 

rails  and  mileage,  67. 

roadway  tools,  68. 

shop  machinery  and  tools,  74. 

signal  apparatus,  70. 

station  buildings  and  fixtures,  71. 

stores,    supplies    and     material     in 
stock,  82. 

stockyards  track  and  stock  scales, 
78. 

street  railways,  85. 

telegraph  and  telephone  lines,  71. 

ties,  67. 

track  fastenings  and  other  material, 
66. 

tunnels,  63. 

water  stations,  74. 

for  valuation  of  gas  mains,  118. 

of  waterworks  mains,  1 18. 

for   waterworks   pumps,    summary, 
117. 
Form  of  summary,  for  result  of  railroad 

appraisal,  57. 
for  telephone  appraisals,  120. 
for  appraising  electric  light  companies, 

125. 
for  appraising  gas  property,  127. 
for  valuing  factory  property,   130. 
for  valuing  waterworks  property,  115. 
Forms  for  appraisal  of  real  estate,  52. 
for  appraising  buildings,  54. 
land,  right  of  way  and  real  estate,  53. 
power-plant  equipment  96,  106. 
for  classification,  43. 
of  depreciation,  35. 
for  railroad  appraisals,  61. 
for  railroad  appraisals,  revised,  61. 
for  tabulating  result,  44. 
Formula  for  calculating  present  worth, 

176. 
for  depreciation,  176. 
Franchise,  advantage  of  perpetual,  238. 
amortization  of,  219. 
amortization  of  long  and  short  term, 

221. 
and  capital,  amortization  of,  219. 
capitalized,  240. 
change  of  opinion  of  Supreme  Court 

in  regard  to,  245. 
court  references  to,  240. 
definition,   230. 

Brunswick  Water  case,  237. 
disadvantage  of  short  term,  238. 


discussion,  244. 

has    no    value    in    Wisconsin    unless 

paid  for,  31. 
indeterminate,  3,  239. 

gives  right  to  purchase,  240. 
or  license,  25. 

limited    term,    accompanied    by    con- 
ditions, 239. 
objections  to  perpetual,  238. 
owner  of,   entitled  to  charge  reason- 
able rates,  40. 
perpetual,  237. 
provisions  to  purchase  property  under, 

23. 
reference    to,    in    Consolidated    Gas 
Case,  241. 
in  law,  creating  Public  Service  Com- 
missions in  N.  Y.,  241. 
in  Smith  v.  Ames,  244. 
by  Wisconsin  Railroad  Commission 
in  Antigo  Water  Case,  241. 
Judge  Savage,  Brunswick  Water  Case, 
236. 
WaterAoUe  Case,  236. 
Supreme  Court  on,  236. 
tax,  method  of  calculating,  decision  of 
court  on,  247. 
method  of  computing  in  Third  Ave. 

Railroad  Case,  248. 
in  N.  Y.,  247. 
treatment  of  in  Oregon,  240. 
value,     method     of      computing     for 
Detroit,  250. 
Chicago  method  of  computing,  248, 

249. 
depends  on  net  earning  power,  40. 
Franchises,  1,  5. 

capitalization  of,   not  allowed,  261. 

effect  value  of  plant,  38. 

long    and    short    term,    amortization 

of,  221. 
rights    and    privileges,    compensation 

for,  40. 
stock  issued  for,  13. 
Freight  train  cars,  form  for  appraising, 

79. 
Frogs,   switches,  and  railroad  crossings, 

form  for  appraising,  66. 
Fuel  stations,  form  for  appraising,  75. 
Full   section    of    railroad,    form    for   ap- 
praising, 81. 
Fund,  borrowing  from  depreciation,  226. 
credited  to  surplus  depreciation,  226. 
deposited  in  bank,  depreciation,  226. 
invested    in    securities,     depreciation, 

226. 
Receiver  of  Third  Ave.   Railroad  de- 
clines to  pro\-ide  depreciation,  162. 
or  reserves,    rulings    on    depreciation, 
by  Wisconsin  Commission,  227,  228. 
Funds,  classification  of  depreciation,  226. 


INDEX 


339 


Gas,   apparatus  in  distribution   system, 
128. 

apparatus  in  generation  house,   128. 

distribution  system,  128. 

mains,  form  for  valuation  of,  118. 

plant,  depreciation  on,  170. 
life  of,  206. 

property,    form   of    summary   for   ap- 
praising, 127. 

valuing,  126. 
General  material,   blank  form,  form  for 

appraising,  80. 
General    office    buildings    and    fixtures, 

form  for  appraising,  72. 
Gillette,  valuation  of  railroads  in  State 

of  Washington,  13. 
Going  concern,  allowance  for,  40. 

definition,  135. 

Prof.  Mead's  definition,   143. 

Judge  Savage  on,  134. 

Wisconsin    Railroad    Commission,    al- 
lows reasonable  expenditure  for,  134. 

Kiersted  on,  145. 

value,  26,  133,  135,  139,  143,  145. 
court  decisions,    139. 
legal  to  capitalize,  252. 
may  be  legally  capitalized,  31. 
Justice   Moody's  opinion,    133. 
included  in  reproduction  value,   14. 
Going  value,  J.  W.  Alvord's  definition  of, 
133,  140. 

W.  H.  Bryan's  definition  of,  141. 

closely  allied  to  earning  value,  135. 

definition  of,  135. 

evidence  in  Madison  Gas  Case,  135. 

Kansas  City  Waterworks  Case,   134. 

may  be  negative,  142. 

waterworks,  134. 
Good  will,  5. 

allowance    for,    where    public    utility 
is  a  monopoly,  not  applicable,   134. 

court  decisions  and  references,    139. 

definition  of,    135. 

definition  by  Lord  Elden,   133. 

English    syndicate    method    of    deter- 
mining value,  133. 

has    no    value    in    Wisconsin    unless 
paid  for,  31. 

may  be  legally  capitalized,  31. 

not    to    be    considered    if    system    is 
exclusive,   40. 

in  Omaha  Waterworks  Case,  142. 

of  successful  newspaper,  144. 

value,  26. 

cost  of    reproduction  important  in 
determining,  137. 
Grading,    form    for   appraising,    63. 
Guarantee  against  competition,  252. 

Horse,    good    example    of    depreciation, 
148. 


House  connections,  not  owned  by  com- 
pany, 30. 
not    owned     by    company,     valuing, 

116. 
to  bo  valued,  42. 
Hydroelectric     plant,     classification    of 
parts,  110. 
form  for  field  inventory,  114. 
dimensions  and  quantities  needed  to 
appraise  property,  112,  113. 
Hydroelectric  property,  valuing,  109. 

Inadequacy,  157. 

depreciation  due  to,  164. 
depreciation  due  to  growth,   147. 
Incidentals,  percentage  added  for,  34. 
Income,    capitalized    with    reference   to, 

8. 
Indeterminate  franchise,  3,  239. 
Information    required    for    valuation    of 

street  railway  property,  85-88. 
Instructions  by  Judge  Savage,  in  case  of 
City  of  Waterville  et  ah,  40. 
Treasury    Decision    for    charging    ap- 
preciation on  real  estate,  49. 
for  valuation  by  Judge  Savage,  37. 
Insurance  during  construction,  18. 
Intangible     property,    amortization    of, 
222. 
street  railway,  89,  94. 
Intangible  value,  9,  24. 
Interest,  during  construction,   18. 
during  construction,  added,  39. 
Interlocking  plants,  form  for  appraising, 

70. 
Interstate    Commerce    Commission,    on 

appreciation  of  land  values,  235. 
Inventories,  by  owners,  131. 
Inventory,    classification    left    to    office 
force,  41. 
factories  divided  for,  42. 
itemized,  33. 
on  letter-size  sheets,  41. 
Investment,  amortization  of,  220. 
Iron,    corrugated,    buildings,   on   Pacific 
Coast,  54. 

Jackson,   W.  B.,  depreciation   reserves, 
230. 

Kansas  City,  National  Waterworks  Co. 
v.,  293. 
Stock  Yards  Co.,  Cotting  v.,  325. 
Waterworks   Case,   going  value,    134. 
Kenebec  Water  case,  instructions,  317. 
Kiersted,  on  going  concern,  145. 
Knoxville  Water  Case,  opinion  of  court 

on  capitalization,  256,   258. 
Knoxville  Water  Co.,  City  of  Knox\'ille  v., 
281. 
decision,  note  on  depreciation,  148. 


340 


INDEX 


Land  values,  appreciation,  48. 
Queensboro  Gas  Case,  50. 
Landed  capital,  amortization  of,  224. 
Leases,  amortization  of,  219. 
Legal  expense,   18. 
Legal  evidence,  cost  of    construction  is, 

40. 
Legislature  not  competent  to  prescribe 

rule  for  damage,  39. 
License  or  franchise,  25. 
Life  of  buildings,   205, 

distribution  system  for  waterworks,  204. 

electric  light  and  railways,  205. 

gas  plants,  206. 

items  of  physical  plant,  204. 

power  plant  equipment,  204. 

telephone  equipment,  206. 

waterworks,    204. 

useful  limits,  table,  207. 
Lighting  plants  in  Great  Britain,  rules  for 

depreciation  of,   165. 
List  of  power  plant  equipment,  95. 
Listing  and  checking,  class  of  men  for,  42. 

classes  of  property  divided  for,  41. 
Locomotives,  form  for  appraising,  79. 
London    Co.    Council    v.    H.    Edwards, 

depreciation  reserves,  232. 
Long  Island  Water  Company,  reference, 

246. 
Lurton,    Judge,    good    will    in    Omaha 
Waterworks  Case,  142. 

Machine  tools  not  effected  by  depre- 
ciation, 163. 

Madison  Gas  Case,  evidence  on  going 
value,  135. 
table  showing  earning  value,  137. 

Maintenance,  deferred,  chargeable  to 
operating  expense,  161. 

Mains,  waterworks,  form  for  valuation 
of,  118. 

Maltbie,  Commissioner,  discussion  on 
appreciation  of  value  of  real  estate, 
50. 

Manufacturing    property,   valuing,    129. 

Market  prices,  on  date  of  appraisal,  to 
be  used,  39. 

Marshall,  Chief  Justice,  right  to  tax,  251. 

Marwick,  Mitchell  &  Co.,  rates  of  de- 
preciation on  large  railway,   199. 

Massachusetts  Gas  and  Electric  Light 
Comn)ission  in  Beverly  Gas  Case, 
215. 

Material,  new,  must  be  of  same  kind,  34. 

Mead,  Prof.,  definition  of  going  concern, 
143. 

Measurement  of  buildings,  for  calcu- 
lating value,  54. 

Metcalf,    classification    of    depreciation, 
168. 
table,  useful  life  of  waterworks,  207. 


Michigan  appraisal  of    telephone  prop- 
erties,   119. 

Michigan     railways,     overhead     charges 
in  valuation  of,  22. 

Milwaukee  Three-cent  Fare  Case,  rates 
of  depreciation,   198. 
overhead  charges  in,  22. 
rates  of  overhead  charges  in,  21. 

Miscellaneous    niaterial,    form    for    ap- 
praising, 80. 
structures,  form  for  appraising,  78. 

Monongahela     Co.    v.   ■  United     States, 
reference,  245. 

Monongahela  Navigation  Co.  v.  United 
States,  324. 

Montgomery    Co.  v.    Schuylkill    Bridge 
Co.,  240,  321. 

Moody,  Justice,  going  concern  value,  133. 

Municipal    Plant,  seldom  has   deprecia- 
tion account,  151. 

National     Electric     Light     Association, 
schedule  of  accounts,   123,   124. 

National    Waterworks    Co.    v.     Kansas 
City,  293. 

New  York,  figures  raised  to  cover  stock 
and  bonds,  13. 
Public  Service  Commission  on   amor- 
tization accounts,  223. 
subway  equipment,  overhead  charges 
on,  21. 

Obsolescence,  156. 

depreciation  due  to,  164. 

development,  147. 
effects  textile  machinery  as  a  whole, 
163. 
Omaha  Waterworks  Case,  Judge  Lurton 

on  good   will  in,    142. 
Operating  expense,  chargeable  with   de- 
preciation, 161. 
depreciation  in,  152. 
Opinion  of  Judge  Savage,  14. 
Ojiinions  of  courts  on  railroad  valuation, 

82. 
Oregon   railways,  overhead   charges,   21. 
Oregon,  treatment  of  franchise,  240. 
Organization,  18. 
Organization  expense,  18. 
Ore  docks,  form  for  appraising,  76. 
Original  cost,  cannot  control,  29. 

of  property,  12. 
Overcharge    to    customers,    represented 
by  value  accruing  to  stock  issued 
as  bonus,  255. 
Overhead  charges,  17. 
Milwaukee,  22. 

engineering  and  supervision  as,  17. 
on  New  York  Subway  equipment,  21. 
on  Oregon  Railways,  21. 
percentage  added  for,  34. 


INDEX 


341 


Overhead  rates,  in  Milwaukee,  21. 
supervision  treated  as,  17. 
in  valuation  of  Michigan  Railways,  22. 


Passenger  train  cars,  form  for  apprais- 
ing, 79. 
Patents,  amortization  of,  224. 
Treasury  Decision  on,  225. 
Percentage,  added  for  contractor's  profit, 
34. 
incidentals,  34. 
overhead  charges,  34. 
underestimating,  19. 
Physical  property,  bonds  issued  for,  13. 
Pile   bridges   and   timber   trestles,    form 

for  appraising,  65. 
Pipe  for  gas,  excavation  at  street  corners 
to  determine  size  and  condition,  126. 
Physical  plant,  life  of  items  of,  204. 
Physical  property,  development  charges 

small  in  comparison  to,  31. 
Plant,  life  of  electric  light,  205. 
Plants,  form  of  summary  for  appraising 

electric  light,  125. 
Platforms,     walks,     paving,   and     curb, 

form  for  appraising,  69. 
Power  plant,  depreciation  on,  169. 
equipment,  life,  204. 

list,  95. 
valuation,  95. 
Power  station  equipment,  form  for  de- 
tailed summary  of,  105. 
Property,  cost  to  reproduce  new,  4,  33. 
development  charges  small  in  compari- 
son to  physical,  31. 
Ford's  list  of  tangible  and  intangible, 

89,  94. 
form  of  summary  for  appraising  gas, 

127. 
original  cost  of,  12. 
Present    value,    ascertained    from     cost 
to  reproduce,  23. 
demanded     by     courts     for     sale     to 

municipality,  24. 
if  greater  than  original  cost,   owners 

entitled  to  increase,  38. 
may   be  wearing  value,   appreciation 

added,  24. 
worth  at  time  of  appraisal,  24. 
Prices,   worth,  formula   for    calculating, 

176. 
Price,    average,    for  term    of    building, 
proper,  15. 
determining  reasonableness,   28. 
Prices,    at    date    of    appraisal    used    in 
Consolidated  Gas  Case,  14. 
apply  average  to  inventory,  33. 
depend   on    judgement    of    appraiser, 

14. 
market,  on  date  of  appraisal  used,  39. 


for  original  plant  too  high,  1. 
used,    those   within   period   necessary 
for  construction,  15. 
Profit,  contractor's,  34. 
Profits,    due    to    special    knowledge    of 
proprietors,  8. 
expected  by  promoters,   1. 
Property,  classes  of,  divided  for  listing, 
41. 
physical,  appraisal,  3. 
worn  out,  2. 
Public,  entitled  to  demand  that  no  more 
be  exacted  than  services  are  worth, 
84. 
not  entitled  to  demand  more  than  ser- 
vices reasonably  worth,  15. 
Public  Service  Commission,  New  York, 
260. 
Commissions,  municipal,  260. 
state,  259. 
powers,  260. 

say  bond  discount  not  to  be  charged 
to  construction,  19. 
corporation    must   show    depreciation 
accounts,  155. 
Public  Utilities  Commissions,  2. 
control   of,   259. 

subject    to    regulation     by    Supreme 
Court,  10. 
Pumps,   waterworks,    form   for   valuing, 

117. 
Purposes  of  Valuation,  27. 

Queensboro  Gas  Case,  land  values,  50. 

Railroad   appraisal,   form   for  summary 
of  result,  57. 

appraisals,  forms  for,  61. 

depreciation  divided  into  three  classes, 
152,  191. 

terminal,  value,  49. 

valuation,  56. 

opinions  of  courts,  82. 

value  of,  more  than  that  of  its  several 
parts,  82, 
Railroads,  appraisal  of,    revised   forms, 
61. 

and   accrued   liability,    chargeable   to 
income,  depreciation  on,  152. 

F.  A.  Delano  says  there  is  no  depre- 
ciation on,  152. 

depreciation  accounts,  154. 

depreciation  of,   162,   191. 

depreciation     sometimes    equals     ap- 
preciation,   191. 

divided   into  three   classes,   deprecia- 
tion of,  152. 

in  State  of  Washington,  valuation,  13. 
Rails  and  mileage,  form  for  appraising,  67. 
Railway,  depreciation  on  large,  199. 

form  for  appraising,  85. 


342 


INDEX 


Railways,  Chicago,  depreciation  on,  103; 
maintained  at  85%,  of  new  value,  148 
depreciation  on,  table,  201. 
in  Great  Britain,  rules  for  deprecia- 
tion of,  165. 
life  of  electric,  205. 
Oregon,  overhead  charges,  21. 
street,   valuation,   84. 
Rail    wear,    depends    on    wheel    move- 
ments,  192. 
Rate  of  compensation  fixed  by  law,  8. 
Rate  of  return,  Consolidated  Gas  Case, 

252. 
Rates,  basis  of  reasonable,  fair  value  of 
property,  38. 
value  of  property,  83. 
depreciation,    190. 

depreciation,  matter  of  opinion,  148. 
municipal  plants,  depreciation,  192. 
effected  by  actual  cost,  38. 
of  overhead  charges,   Milwaukee,   21. 
reasonableness   of,    depend    upon    fair 

value  of  property,  15. 
determined  by  preponderence  of  evi- 
dence, 39. 
relates  to  both  owner  and  customer, 

38. 
reasonable,    owner    of    franchise    can 

only  charge,  40. 
to    capitalize    difference   in    value,    in 
appraising  water  power,  108. 
Real  estate,  appreciation,  48. 
appreciation  in  value  of,  50. 
belonging  to  factor^',  value,  48. 
forms  for  appraising,  53, 
forms  for  use  in  appraisal  of,  52. 
instructions  by  Treasury  Decision  for 

charging  appreciation  on,  49. 
valuation,  45. 

value  of,  for  other  purposes,  60. 
"Reasonable"   depends  on  circum- 
stances, 38. 
Reasonableness  of  Rates  determined  by 
preponderence  of  evidence,  39. 
relates  to  both  owner  and  customer,  38. 
Receiver.ships  found  necessary,  2. 
Regulation,   by   Supreme  Court,    public 

utilities  subject  to,  10. 
Remedy  for  relieving  corporations,  11. 
Renewals  in  Chicago  Traction  System, 

207-218. 
Reorganizations  continued,  2. 
Replacement,  cost  of,  not  applicable  to 

property,    12. 
Reproduction,    new,    must    be    in    same 

form,   11. 
Cost,    important    in    determining    good 
will  value,  i;{7. 
must  be  considered  in  a  way  humanly 

possible,  16. 
new,  4. 


basis  of  modern  appraisements,  14. 
not  conclusive,  40. 
Reserves,  court  decisions  and  opinions, 

depreciation,  231. 
Return  allowed  on  original  cost,  13. 
Right-of-way,     forms     for      appraising, 

53. 
Riggs,     Valuation     of     public     utilities 

property,    1 1 . 
Roads  and  trails,  expense  of,    in  West, 

109. 
Roadway  tools,  form  for  appraising,  68. 
Roycs,   depreciation  is  accrued  liability 

chargeable  against  income,  152. 

Salvage,  value,  22. 
definition,  35. 

greater  than  that  of  junk,  23. 
San  Diego  Land  &  Title  Co.  v.  City  of 

National  City,  322. 
San  Diego  Land  &  Town  Co.  v.   City  of 

National  City,  82. 
Sanford   ct  al.,    Covington  &  L.   Turn- 

Ijike  Co.  v.,  323. 
Savage,  Judge,  on  franchise,   Brunswick 
Water  Case,  236. 
on  franchise,  Waterville  Case,  236. 
on  going  concern,    134. 
instructions   by,    for   city    of    Water- 
ville, 40. 
instructions  given  for  valuation,  37. 
opinion,   14. 
Schuylkill  Bridge  Co.,  Montgomery  Co. 

v.,  321. 
Scrap  value,  22. 

covered  by  change  in  rate  of  deprecia- 
tion, 34. 
determined  as  fair  market  value,  34. 
same  as  for  junk,  23. 
Securities ;  new  issues  of,  allowed,  2. 
Service  value,  23. 

and  development  charges,  35. 
original,  35. 
remaining,  23. 
Shop  force,  factory  property  inventoried 
by,  132. 
machinery    and    tools,    form    for    ap- 
praising, 74. 
Signal  apparatus,  form  for  appraising,  70. 
Sinking    fund,    formula    for    calculating, 
176. 
method  coming  more  into  use,  190. 
Smith  V.  Ames,  court  opinion  on   capi- 
talization, reference,  256. 
reference  to  franchi.se,  244. 
Smith,  Atty.-Gen.,  ct  al.  v.  Ames,  328. 
State  Railway  Commission  of  Nebraska, 
rulings  as  to  depreciation   reserves, 
228. 
Station   building  and   fixtures,   form    for 
appraising,   71. 


INDEX 


343 


stock  issued  for  franchises,  18. 

in  New  York,  figures  raised  to  cover, 

with  bonds,  13. 
watered,    1. 
Stocks,    capitalizing    discount    is    inde- 
fensible, 20. 
Stockwell,  H.  G.,  depreciation  reserves, 

229. 
Stockyards,    track,    and     stock     scales, 

form  for  appraising,  78. 
Stone  &  Webster,  depreciation  on  Chi- 
cago railways,  193. 
Stores,  supplies  and  material  in  stock, 

form  for  appraising,  82. 
Street  railways,  form  for  appraising,  85. 

valuation,  84. 
Substations  and  transmission  line,  11. 
Subway    equipment,    N.    Y.,    overhead 

charges,  21. 
Summary    of    appraisal,    form    for    de- 
tailed, 46. 
Supersession,  157. 

depreciation  due  to  growth,  147. 
Supervision,  included  in  engineering,  18. 

an  overhead  charge,  17. 
Supreme   Court,    change   of  opinion   in 
regard  to  franchise,  245. 
on  franchise,  236. 
Surfacing,  form  for  appraising,  68. 
Surplus  earnings,  Chicago  divides  with 
company,  252. 
devoted  to  maintaining  original  cost, 
151. 
Surplus,  reinvestment,  255. 

Tangible    property,    of    street    railway, 

89,  94. 
Tax,  method  of  calculating,  decision  of 
court  on  franchise,  247. 
computing    in    Third    Ave.    Railroad 

Case,  248. 
in  N.  Y.  franchise,  38. 
right  to,  251. 
Taxes,  during  construction,  18. 
Telegraph  and  telephone  lines,  form  for 

appraising,  71. 
Telephone  appraisal,  form  of  summary, 
120. 
equipment,  life  of,  206. 
plant,  depreciation  on,  170. 

depreciation  on,  table,  203. 
properties,   Michigan  appraisal,   119. 
property,  depreciation,  119. 

valuation,  119. 
valuations,  court  decisions,  121. 
wires,  depreciation,  table,  202. 
Textile  machinery  affected  as  a  whole  by 

obsolesence,  163, 
Three-cent  Fare  Case,  depreciation,  198. 
Ties,   form  for  appraising,   67. 
Title  in  fee,  note,  52. 


Track    fastenings    and    other    material, 
form  for  appraising,  66. 
laying,  form  for  appraising,  68. 
and  rails,  depreciation  of,  191. 
Treasury  Decisions  on  amortization  of 
patents,  225. 
for  charging  appreciation  on  real  estate, 

49. 
on  depreciation,  149. 
Tunnels,  form  for  appraising,  63. 
Turbines,  form  for  field  inventory,  114. 

Underestimating,  percentage  added,  19. 

U.  S.  Government  allowance  for  depre- 
ciation, 204. 

United  States,  Monongahela  Naviga- 
tion Co.  v.,  324. 

Utilities,  regulated  in  Wisconsin  on  basis 
of  physical  value,  31. 

Valuation,  an  appraisal  at  some  set 
date,  150. 

cost,  131. 

for     determining     reasonableness     in 
price,   28. 

of  factory,  28. 

kind  wanted,  131. 

limited  to  like  plant,  40. 

Michigan  railways,  overhead    charges 
on,  22. 

and  original  cost  of  railroads  in  State 
of  Washington,  13. 

permanence,  36. 

of  plant  affected  by  franchises,  38. 

physical,  opinion  of  railroad  writers,  29. 

of  Buffalo  property,  4. 

of  power  plant,  95,  106. 

of  public  utilities  property,   11. 

purposes,  27. 

railroad,  opinions  of  courts,  82. 

of  railroads,  56. 

Railroad  Age  Gazette  on  capitalization, 
257. 
in  State  of  Washington,  13. 

for  rates,  12. 

of  real  estate,   45. 

of   street   railway   property,    informa- 
tion required,  85-88. 

of  street  railways,  84. 

for  taxes,  12. 

of  telephone  property,  119. 

of  waterworks,  115. 
mains,  form  for  118. 
Valuations  determined  under  principles 

of  eminent  domain,  38. 
Value,  accruing  to  stork,  issued  for  bonus, 
represents  overcharge  to  customers, 
255. 

assessed,  value  to  seller,  40. 

capitalization  should   bear  direct  re- 
lation to,  262. 


344 


INDEX 


Value.  Chicago  railway  property  main- 
tained at  85  per  cent  of  new,  148. 
commercial,  7. 
commercial,  definition,  82. 
definition,  6,  7. 

depreciation  a  question  of,  153. 
determined  by  i^roductiveness,  8. 
not  determined  by  cost  of  construc- 
tion, 9. 
development  charges  and  services,  35. 
earning,  7. 
earning,  combination  is  based  on,    13. 

court  decisions  and  references,  139. 

table  in  Madison  Gas  Case,  showing, 
137. 
one  element  of,  cost  to  customers  of 

serving  themselves,  39. 
enhanced  by  structure  in  use,  38. 
of  factory  site,  49. 

fair,  basis  of  reasonableness  of   rates, 
15,  38. 

in  excess   of  cost   of  reproduction, 
30. 

physical.  2. 
of  franchise  depends  on  net  earning 

power,  40. 
going,  133-135,  139-142. 

definition  of,   133,   140,   141. 

negative,  142. 
going  concern,  26,   133-135,  139,  143, 
145. 

court  decisions  and  references,  139. 

legally  capitalized,  31. 
good  will,  26. 
of  good  will,  English  syndicate  method 

of  determining,  133. 
hydroelectric    plant,    111. 
intangible,  9,  24. 
of  land  for  other  purposes,  60. 
market,  6. 

Matheson's  definition,   7. 
method  of  computing  franchise,  250, 
Moody's    opinion    of    going    concern, 

133. 
only  one,  11. 
original  service,  35. 
owners  entitled  to  increase,  15. 
physical,  9. 

should  include  all  connected    non- 
physical  charges,  10. 
plant  affected  by  franchise,  38. 
not  possible  to  keep  plant   at  over  85 

of   first   cost,    162. 
present,  demanded   by  courts  for  sale 
to  municipality,  24. 

if  greater  than  cost,  owner  entitled 
to  increase,  38. 

or  depreciated,   11. 

may  be  wearing  value,  with    appre- 
ciation added,  24. 

worth  at  time  of  appraisal,  24. 


of  property  used,  basis  of  reasonable- 
ness of  rates,  83. 

company  entitled  to  fair  return  on, 
15. 

only,  must  be  represented  by  capital- 
ization, 252. 
of    railroad    more    than    that    of    its 

several  parts,  82. 
of  railroad  terminal,  49. 
of   real    estate,  belonging   to   factory, 

48. 
discussion  of  appreciation  in,  50. 
remaining  ser\ace,  23. 
reproduction  cost  important  in  good 
wiU,   137. 

new,   should  include  going  concern 
value,  14. 
H.  E.  Riggs'  definition  of,  7. 
salvage,  22. 

definition,  35. 

greater  than  that  of  junk,  23. 
scrap,  22. 

same  as  for  junk,  23. 
ser^dce,  23. 

and  development  charges,  35. 
taxable,  7. 

of  water  power  privilege,  108. 
wearing,  23,  35. 
Values,  appreciation  of  land,  48. 

company  to  blame  for  small,  if  it  does 

not  produce  books,  30. 
division,  9. 
scrap,    can    be   covered    by   changing 

rate  of  depreciation,  34. 
tables    of    diminishing    depreciation, 

172,   175. 
Valuing  electric  light  plant,  122. 
factory  property,  129. 

form  of  summary  for,   130. 
gas  property,   126. 
house     connections     not     owned     by 

company,   116. 
hydroelectric  property,  109, 
manufacturing  property,   120. 
water   power    privilege,    steps    to    be 

followed,    107. 
waterworks   property,    form    of    sum- 
mary for,  115. 

Water  power,  appraisal  of  damages  to 
developed,  108. 

damage  to,  bj'  diversion  of  flow, 
108. 

damage  to,  produces  varying  amount 
of  power,  108. 

points  determined  in  calculating  dam- 
age,  109. 

privilege,  appraisal,   106. 

steps  to  be  followed  in  valuing,  107. 

properties,  difference  in  the  east  and 
the  west,  109. 


INDEX 


345 


Water  stations,  form  for  appraising,  74. 

wheels  and  governors,  110. 
Waterworks,     condemnation     and     ap- 
praisal, 37. 
damages,  for  property  taken,  37. 
form  for  valuing,  summary,   115. 
going  value,  134. 
life,  204. 

useful  life  of,  table,  204,  207. 
mains,  form  for  valuation,  118. 
property,     form     for      summary     for 

valuing,    115. 
pumps,  summary  for  valuing,  117. 
valuation,  115. 
Wear    and    tear,    on    basis    of     original 
service  value,  160. 
depreciation  due  to,  147,  163. 
difficulty    of    separating    depreciation 

from,  in  factories,  151. 
ordinarily    charged    to    operating    ex- 
penses, 159. 
Wearing  value,  23,  35. 
Willcox    V.     Consolidated    Gas    Co.,    in 

full,  264. 
Williams,  discussion  of  franchise,  244. 


Wisconsin  allows  no  value  for  franchise, 

unless  paid  for,  31. 
Wisconsin  Railroad  Commission,  allows 

reasonable  expenditure  for  good  will, 

134. 
allows   no   value  for  good   will   unless 

paid  for,  31. 
decisions  practically  final,  31. 
regulates  utilities  on  basis  of  physical 

value,  31. 
reference  to  franchise  in  Antigo  Water 

Case,  241. 
rulings  on  depreciation  reser%'es,  227. 
Wisconsin  railroads,  apportioning  roll- 
ing stock,  60. 
condition  percentage,  58. 
cost  of  leproduction,  58. 
grades  and  curves  not  considered,  60. 
industrial   tracks,    60. 
land  values,  58. 
physical  value,  58. 
present  values,  58. 
right-of-way,  59. 
Worth  defined,    10. 
Worth  of  service,  definition,  39. 


D.  VAN    NOSTRAND    COMPANY 

25    PARK    PLAGE 

New  York 

SHORT=TITLE  CATALOG 

OF 
OF 

SCIENTIFIC  AND  ENGINEERING 

BOOKS 


This  list  includes   the  technical  publications  of  the  following 
English  publishers: 

SCOTT,    GREENWOOD   &   CO.         CROSBY    LOCKWOOD    &   SON 

CONSTABLE  &  COMPANY,  Ltd.     TECHNICAL  PUBLISHING  CO. 

ELECTRICIAN  PRINTING   &   PUBLISHING    CO. 

for  whom  D.  Van  Nostrand  Company  are  American  agents. 


March,  1912 

Short-Title  Catalog 


OF   THE 


Publications   and   Importations 

OF 

D.  VAN  NOSTRAND  COMPANY 

>^       25  PARK  PLAGE,  NEW  YORK 

Prices  marked  with  an  asterisk  (*)  are  NET. 
All  bindings  are  in  cloth  unless  otherwise  noted. 


ABC  Code.     (See  Clausen-Thue.) 

Abbott,  A.  V.     The  Electrical  Transmission  of  Energy. 8vo,  *$5  oo 

A  Treatise  on  Fuel.     (Science  Series  No.  9.) i6mo,  o  50 

Testing  Machines.     (Science  Series  No.  74.) i6mo,  o  50 

Adam,  P.     Practical  Bookbinding.     Trans,  by  T.  E.  Maw i2mo,  *2  50 

Adams,  H.  C      Sewage  of  Sea  Coast  Towns 8vo,  *2  00 

Adams,  H.     Theory  and  Practice  in  Designing 8vo,  *2  50 

Adams,  J.  W.     Sewers  and  Drains  for  Populous  Districts Svo,  2  50 

Addyman,  F.  T.     Practical  X-Ray  Work Svo,  *4  00 

Ai  Code.     (See  Clausen-Thue.) 

Aikman,  C.  M.    Manures  and  the  Principles  of  Manuring Svo,  2  50 

Aitken,  W.     Manual  of  the  Telephone.     Two  Volumes 

d'Albe,  E.  E.  F.,    Contemporary  Chemistry i2mo,  *i  25 

Alexander,  J.  H.     Elementary  Electrical  Engineering i2mo,  2  00 

Universal  Dictionary  of  Weights  and  Measures Svo,  3  50 

"  Alfrec."     Wireless  Telegraph  Designs 

Allan,  W.     Strength  of  Beams  Under  Transverse  Loads.     (Science  Series 

No.  19.) i6mo,  o  50 

Theory  of  Arches.     (Science  Series  No.  11.) i6mo, 

Allen,  H.     Modern  Power  Gas  Producer  Practice  and  Applications.  i2mo,  *2  50 

Gas  and  Oil  Engines Svo,  *4  50 

Anderson,  F.  A.     Boiler  Feed  Water Svo,  *2  50 

Anderson,  Capt.  G.  L.     Handbook  for  the  Use  of  Electricians Svo,  3  00 

Anderson,  J.  W.     Prospector's  Handbook i2mo,  i   50 

And^s,  L.     Vegetable  Fats  and  Oils Svo,  *4  00 

Animal  Fats  and  Oils.     Trans,  by  C.  Salter Svo,  *4  00 

Drying  Oils,  Boiled  Oil,  and  Solid  and  Liquid  Driers Svo,  *5  00 

Iron  Corrosion,  Anti-fouling  and  Anti-corrosive  Paints.     Trans,  by 

C.  Salter Svo,  *4  00 

Oil  Colors,  and  Printers'  Ink.     Trans,  by  A.  Morris  and  H.  Robson 

Svo,  *2  50 


D.   VAN   NOSTRAND   COMPANY'S    SHORT   TITLE   CATALOG        3 

And^s,   L.      Treatment    of   Paper    for    Special    Purposes.       Trans,    by 

C.  Salter lamo,  *2  50 

Annual  Reports  on  the  Progress  of  Chemistry. 

Vol.     I.  (1904) 8vo,  *2  00 

Vol.    IL  (1005) .8vo,  *2  00 

Vol.  III.  (1906) 8vo,  *2  00 

Vol.  IV.  (1907) Svo,  *2  00 

Vol.    V.  (1908) Svo,  *2  00 

Vol.  VI.  (1909) 8vo,  *2  00 

Vol.  Vn.  (1910) 8vo,  *2  00 

Argand,    M.     Imaginary   Quantities.     Translated   from   the    French   by 

A.  S.  Hardy.     (Science  Series  No.  52.) i6mo,  o  50 

Armstrong,  R.,  and  Idell,  F.  E.     Chimneys  for  Furnaces  and  Steam  Boilers. 

(Science  Series  No.  i.) , i6mo,  o  50 

Arnold,  E.     Armature  Windings  of  Direct-Current  Dynamos.      Trans,  by 

F.  B.  DeGress 8vo,  *2  00 

Ashe,  S.  W.,  and  Keiley,  J.   D.     Electric   Railways.   Theoretically  and 

Practically  Treated.     Vol.  I.  Rolling  Stock i2mo,  *2  50 

Ashe,  S.  W.     Electric  Railways.     Vol.  II.  Engineering  Preliminaries  and 

Direct  Current  Sub-Stations i2mo,  *2  50 

Electricity:  Experimentally  and  Practically  Applied i2mo,  *2  00 

Atkinson,  A.  A.     Electrical  and  Magnetic  Calculations Svo,  *i   50 

Atkinson,  J.  J.     Friction  of  Air  in  Mines.     (Science  Series  No.  14.) ..  i6mo,  o  50 
Atkinson,  J.  J.,  and  Williams,  Jr.,  E.  H.     Gases  Met  with  in  Coal  Mines. 

(Science  Series  No.  13.) i6mo,  o  50 

Atkinson,  P.     The  Elements  of  Electric  Lighting i2mo,  i  50 

The  Elements  of  Dynamic  Electricity  and  Magnetism i2mo,  2  00 

Power  Transmitted  by  Electricity i2mo,  2  00 

Auchincloss,  W.  S.     Link  and  Valve  Motions  Simplified Svo,  *i  50 

A)n:ton,  H.     The  Electric  Arc Svo,  *5  00 

Bacon,  F.  W.     Treatise  on  the  Richards  Steam-Engine  Indicator  .  .  i2mo,  i  00 

Bailes,  G.  M.     Modern  Mining  Practice.     Five  Volumes Svo,  each,  3  50 

Bailey,  R.  D.     The  Brewers'  Analyst Svo,  *5  00 

Baker,  A.  L.     Quaternions Svo,  *i  25 

Thick-Lens  Optics (In  Press.) 

Baker,  Benj.     Pressure  of  Earthwork.     (Science  Series  No.  56.)...i6mo, 

Baker,  I.  0.     Levelling.     (Science  Series  No.  91.) i6mo,  o  50 

Baker,  M.  N.     Potable  Water.     (Science  Series  No.  61.) i6mo,  o  50 

Sewerage  and  Sewage  Purification.     (Science  Series  No.  i8.)..i6mo,  o  50 

Baker,  T.  T.     Telegraphic  Transmission  of  Photographs.  . i2mc,  *i   25 

Bale,  G.  R.     Modern  Iron  Foundry  Practice.     Two  Volumes.     i2mo. 

Vol.    I.  Foundry  Equipment,  Materials  Used *2  50 

Vol.  II.  Machine  Moulding  and  Moulding  Machines *i  50 

Bale,  M.  P.     Pumps  and  Pumping i2mo,  i  50 

Ball,  R.  S.     Popular  Guide  to  the  Heavens Svo,  *4  50 

Natural  Sources  of  Power.     (Westminster  Series.) Svo,  *2  00 

Ball,  W.  V.     Law  Affecting  Engineers Svo,  *3  50 

Bankson,  Lloyd.     Slide  Valve  Diagrams.     (Science  Series  No.  loS.) .  i6mo,  o  50 

Barba,  J.     Use  of  Steel  for  Constructive  Purposes i2mo,  i  00 

Barham,  G.  B.     Development  of  the  Incandescent  Electric  Lamp.  .  .  .  (In  Press.) 


4        D.  VAN   NOSTRAND   COMPANY'S   SHORT   TITLE   CATALOG 

Barker,  A.    Textiles  and  Their  Manufacture.     (Westminster  Series.)    -Svo,  2  00 

Barker,  A.  H.     Graphic  Methods  of  Engine  Design i2mo,  *i  50 

Barnard,  F.  A.  P.     Report  on  Machinery  and  Processes  of  the  Industrial 

Arts  and  Apparatus  of  the  Exact  Sciences  at  the  Paris  Universal 

Exposition,  1867 8vo,  5  00 

Barnard,  J.  H.     The  Naval  Militiaman's  Guide i6mo,  leather  i  25 

Barnard,  Major  J.  G.     Rotary  Motion.     (Science  Series  No.  90.) i6mo,  o  50 

Barrus,  G.  H.     Boiler  Tests Svo,  *3  00 

Engine  Tests Svo,  *4  00 

The  above  two  purchased  together *6  00 

Barwise,  S.     The  Purification  of  Sewage i2mo,  3  50 

Baterden,  J.  R.     Timber.     (Westminster  Series.) Svo,  *2  00 

Bates,  E.  L.,  and  Charlesworth,  F.     Practical  Mathematics 1 2mo, 

Part   I.     Preliminary  and  Elementary  Course *i  50 

Part  11.     Advanced  Course *i  50 

Beadle,  C.     Chapters  on  Papermaking.     Five  Volumes i2mo,  each,  *2  00 

Beaumont,  R.     Color  in  Woven  Design Svo,  *6  00 

Finishing  of  Textile  Fabrics Svo,  *4  00 

Beaumont,  W.  W.     The  Steam-Engine  Indicator Svo,  2  50 

Bedell,  F,,  and  Pierce,  C.  A.     Direct  and  Alternating  Current  Manual.Svo,  *2  00 

Beech,  F.     Dyeing  of  Cotton  Fabrics Svo,  *3  00 

Dyeing  of  Woolen  Fabrics Svo,  *3  50 

Beckwith,  A.     Pottery Svo,  paper,  o  60 

Begtrup,  J.     The  Slide  Valve Svo,  *2  00 

Beggs,  G.  E.     Stresses  in  Railway  Girders  and  Bridges (In  Press.) 

Bender,  C.  E.     Continuous  Bridges.     (Science  Series  No.  26.) i6mo,  o  50 

Proportions  of  Piers  used  in  Bridges.     (Science  Series  No.  4.) 

i6mo,  o  50 

Bennett,  H.  G.     The  Manufacture  of  Leather Svo,  *4  50 

Bernthsen,    A.      A  Text  -  book  of  Organic   Chemistry.      Trans,   by  G. 

M'Gowan i2mo,  *2  50 

Berry,  W.  J.     Differential  Equations  of  the  First  Species.     i2mo   {In  Preparation.) 
Bersch,  J.     Manufacture  of  Mineral  and  Lake  Pigments.     Trans,  by  A.  C. 

Wright Svo,  *5  00 

Bertin,  L.  E.     Marine  Boilers.     Trans,  by  L.  S.  Robertson Svo,  5  00 

Beveridge,  J.     Papermaker's  Pocket  Book i2mo,  *4  00 

Binns,  C.  F.     Csramic  Technology Svo,  *5  00 

Manual  of  Practical  Potting Svo,  *7  50 

The  Potter's  Craft    i2mo,  *2  00 

Birchmore,  W.  H.     How  to  Use  a  Gas  Analysis i2mo,  *i  25 

Blaine,  R.  G.     The  Calculus  and  Its  Applications i2mo,  *i  50 

Blake,  W.  H.     Brewers'  Vade  Mecum Svo,  *4  00 

Blake,  W.  P.     Report  upon  the  Precious  Metals Svo,  2  00 

Bligh,  W.  G.     The  Practical  Design  of  Irrigation  Works Svo,  *6  00 

Bliicher,  H.      Modern  Industrial  Chemistry.     Trans,  by  J.  P.  Millington 

Svo,  *7  50 

Blyth,  A.  W.     Foods:  Their  Composition  and  Analysis Svo,  7  50 

Poisons:  Their  Effects  and  Detection Svo,  7  50 

Bockmann,  F.     Celluloid i2mo,  *2  50 

Bodmer,  G.  R.     Hydraulic  Motors  and  Turbines i2mo,  5  00 

Boileau,  J.  T.     Traverse  Tables. Svo,  5  00 


D.    VAN   NOSTRAND   COMPANY'S   SHORT   TITLE   CATALOG 

Bonney,  G.  E.     The  Electro-platers'  Handbook i2mo, 

Booth,  W.  H.     Water  Softening  and  Treatment '. 8vo, 

Superheaters  and  Superheating  and  Their  Control 8vo, 

Bottcher,  A.     Cranes:    Their  Construction,  Mechanical  Equipment  and 

Working.     Trans,  by  A.  Tolhausen 4to, 

Bottler,  M.     Modern  Bleaching  Agents.     Trans,  by  C.  Salter i2mo, 

Bottone,  S.  R.     Magnetos  for  Aii*omobilists i2mo, 

Boulton,  S.  B.  Preservation  of  Timber.  (Science  Series  No.  82.) .  i6mo, 
Bourgougnon,  A.  Physical  Problems.  (Science  Series  No.  ii3.)..i6mo, 
Bourry,  E.     Treatise  on  Ceramic  Industries.     Trans,  by  J.  J.  Sudborough. 

8vo, 

Bow,  R.  H.     A  Treatise  on  Bracing 8vo, 

Bowie,  A.  J.,  Jr.     A  Practical  Treatise  on  Hydraulic  Mining 8vo, 

Bowker,  W.  R.     Dynamo,  Motor  and  Switchboard  Circuits 8vo, 

Bowles,  O.     Tables  of  Common  Rocks.      (Science  Series  No.  125.). .  i6mo. 

Bowser,  E.  A.     Elementary  Treatise  on  Analytic  Geometry i2mo, 

Elementary  Treatise  on  the  Differential  and  Integral  Calculus.  i2mo, 

Elementary  Treatise  on  Analytic  Mechanics i2mo, 

Elementary  Treatise  on  Hydro-mechanics i2mo, 

A  Treatise  on  Roofs  and  Bridges i2mo. 

Boycott,  G.  W.  M.     Compressed  Air  Work  and  Diving 8vo, 

Bragg,  E.  M.     Marine  Engine  Design. i2mo, 

Brainard,  F.  R.     The  Sextant.     (Science  Series  No.  loi.) i6mo, 

Brassey's  Naval  Annual  for  191 1 8vo, 

Brew,  W.     Three-Phase  Transmission 8vo, 

Brewer,  R.  W.  A.     The  Motor  Car i2mo, 

Briggs,    R.,    and    Wolff,    A.    R.     Steam-Heating.     (Science    Series    No. 

67.) i6mo, 

Bright,  C.     The  Life  Story  of  Sir  Charles  Tilson  Bright 8vo, 

British  Standard  Sections 8x15 

Complete  list  of  this  series  (45  parts)  sent  on  application. 
Broadfoot,  S.  K.     Motors,  Secondary  Batteries.     (Installation  Manuals 

Series) i2mo, 

Broughton,  H.  H.     Electric  Cranes  and  Hoists *g 

Brown,  G.     Healthy  Foundations.     (Science  Series  No.  80.) i6mo. 

Brown,  H.     Irrigation 8vo, 

Brown,  Wm.  N.     The  Art  of  Enamelling  on  Metal i2mo, 

Handbook  on  Japanning  and  Enamelling i2mo, 

■ House  Decorating  and  Painting i2mo, 

History  of  Decorative  Art i2mo, 

Dipping,  Burnishing,  Lacquering  and  Bronzing  Brass  Ware. . .  i2mo, 

Workshop  Wrinkles 8vo, 

Browne,  R.  E.     Water  Meters.     (Science  Series  No.  81.) i6mo, 

Bruce,  E.  M.     Pure  Food  Tests i2mo, 

Bruhns,  Dr,     New  Manual  of  Logarithms 8vo,  half  morocco, 

Brunner,  R.     Manufacture   of  Lubricants,  Shoe   Polishes  and  Leather 

Dressings.     Trans,  by  C.  Salter 8vo, 

Buel,  R.  H.     Safety  Valves.     (Science  Series  No.  21.) i6mo, 

Bulman,  H.  F.,  and  Redmayne,  R.  S.  A.     Colliery  Working  and  Manage- 
ment  8vo, 

Burgh,  N.  P.     Modern  Marine  Engineering 4to,  half  morocco. 


I 

20 

*2 

50 

*I 

50 

10 

00 

*2 

50 

*I 

00 

0 

50 

0 

50 

*5 

00 

I 

50 

5 

00 

*2 

50 

0 

50 

I 

75 

2 

25 

3 

00 

2 

50 

*2 

25 

*4 

00 

*2 

00 

*6 

00 

*2 

00 

*2 

00 

0 

50 

u 

50 

*I 

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*0 

75 

*9 

00 

0 

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*5 

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*i 

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*i 

00 

0 

50 

*i 

25 

2 

50 

*3 

00 

0 

50 

6 

00 

10 

00 

6        D.   VAX    NOSTRAXD    COMPANY'S   SHORT   TITLE   CATALOG 

Burt,  W.  A.     Key  to  the  Solar  Compass i6mo,  leather,  2  50 

Burton,  F.  G.     Engineering  Estimates  and  Cost  Accounts i2mo,  *i  50 

Buskett,  E.  W.     Fire  Assaying lamo,  *i  25 

Cain,  W.     Brief  Course  in  the  Calculus i2mo,  *i   75 

Elastic  Arches.     (Science  Series  No.  48.) i6mo,  o  50 

Maximum  Stresses.     (Science  Series  No.  38.) i6mo,  0  50 

Practical  Designing   Retaining   of    Walls.     (Science  Series   No.   3.) 

i6mo,  o  50 
Theory     of     Steel-concrete     Arches    and    of    Vaulted    Structures. 

(Science  Series  No.  42.) i6rao,  0  50 

Theory  of  Voussoir  Arches.     (Science  Series  No.  12.) i6mo,  o  50 

Symbolic  Algebra.     (Science  Series  No.  73.) i6mo,  o  50 

Campin,  F.     The  Construction  of  Iron  Roofs 8vo,  2  00 

Carpenter,  F.  D.     Geographical  Surveying.     (Science  Series  No.  37.) .  i6mo. 

Carpenter,  R.  C,  and  Diederichs,  H.     Internal  Combustion  Engines. 8vo,  *5  00 

Carter,  E.  T.     Motive  Power  and  Gearing  for  Electrical  Machinery  .  .8vo,  *5  00 

Carter,  H.  A.     Ramie  (Rhea),  China  Grass i2mo,  *2  00 

Carter,  H.  R.     Modern  Flax,  Hemp,  and  Jute  Spinning 8vo,  *3  00 

Cathcart,  W.  L.     Machine  Design.     Part  I.  Fastenings Svo,  *3  00 

Cathcart,  W.  L.,  and  Chaffee,  J.  I.     Elements  of  Graphic  Statics Svo,  *3  00 

Short  Course  in  Graphics i2mo,  i  50 

Caven,  R.  M.,  and  Lander,  G.  D.     Systematic  Inorganic  Chemistry.  i2mo,  *2  00 

Chambers'  Mathematical  Tables 8vo,  i  73 

Charnock,  G.  F.     Workshop  Practice.     (Westminster  Series.)    .  .  .8vo  {In  Press.) 

Charpentier,  P.     Timber 8vo,  *6  00 

Chatley,  H.     Principles  and  Designs  of  Aeroplanes.    (Science    Series.) 

No.  126.) i6mo,  o  50 

How  to  Use  Water  Power 1 2mo,  *i  00 

Child,  C.  T.     The  How  and  Why  of  Electricity i2mo,  i  00 

Christie,  W.  W.     Boiler- waters,  Scale,  Corrosion,  Foaming Svo,  *3  00 

Chimney  Design  and  Theory Svo,  *3  00 

Furnace  Draft.     (Science  Series  No.  123.) i6mo,  o  50 

Church's  Laboratory  Guide.     Rewritten  by  Edward  Kinch Svo,  *2  50 

Clapperton,  G.     Practical  Papermaking Svo,  2  50 

Clark,  A.  G.     Motor  Car  Engineering.     Vol.  1.     Construction *3  00 

Clark,  C.  H.     Marine  Gas  Engines i2mo,  *i  50 

Clark,  D.  K.     Rules,  Tables  and  Data  for  Mechanical  Engineers Svo,  5  00 

Fuel:  Its  Combustion  and  Economy i2mo,  i  50 

The  Mechanical  Engineer's  Pocketbook i6mo,  2  00 

Tramways:  Their  Construction  and  Working Svo,  7  50 

Clark,  J.  M.     New  System  of  Laying  Out  Railway  Turnouts i2mo,  i  00 

Clausen-Thue,  W.     ABC  Telegraphic  Code.     Fourth  Edition i2mo,  *5  00 

Fifth  Edition Svo,  *7  00 

The  A  I  Telegraphic  Code Svo,  *7  50 

Cleemann,  T.  M.     The  Railroad  Engineer's  Practice i2mo,  *i  50 

Clerk,  D.,  and  Idell,  F.  E.     Theory  of  the  Gas  Engine.     (Science  Series 

No.  62.) i6mo,  o  50 

Clevenger,  S.  R.     Treatise    on    the    Method    of    Government    Surveying. 

i6mo,  morocco 2  50 

Clouth,  F.     Rubber,  Gutta-Percha,  and  Balata Svo,  *5  00 


D    VAN   NOSTRAND   COMPANY'S  SHORT   TITLE   CATALOG        7 

Coffin,  J.  H.  C.     Navigation  and  Nautical  Astronomy i2mo,  *3  50 

Colburn,  Z.,  and  Thurston,  R.  H.     Steam  Boiler  Explosions.     (Science 

Series  No.  2.) i6mo,  o  50 

Cole,  R.  S.     Treatise  on  Photographic  Optics i2mo,  i  50 

Coles-Finch,  W.     Water,  Its  Origin  and  Use 8vo,  *$  00 

Collins,  J.  E.     Useful  Alloys  and  Memoranda  for  Goldsmiths,  Jewelers. 

i6mo 0  50 

Constantine,    E.     Marine    Engineers,    Their    Qualifications   and  Duties. 

8vo,  *2  00 

Coombs,  H.  A.     Gear  Teeth.     (Science  Series  No.  120.) i6mo,  o  50 

Cooper,  W.  R.     Primary  Batteries 8vo,  *4  00 

■ '*  The  Electrician  "  Primers ..." Svo,  *5  00 

Part  I *i  50 

Part  II *2  50 

Part  III *2  00 

Copperthwaite,  W.  C.     Tunnel  Shields 4to,  *g  00 

Corey,  H.  T.     Water  Supply  Engineering Svo  (In  Press.) 

Corfield,  W.  H.     Dwelling  Houses.     (Science  Series  No.  50.) i6mo,  0  50 

Water  and  Water-Supply.     (Science  Series  No.  17.) i6mo,  o  50 

Cornwall,  H.  B.     Manual  of  Blow-pipe  Analysis Svo,  *2  50 

Courtney,  C.  F.     Masonry  Dams Svo,  3  50 

Cowell,  W.  B.     Pure  Air,  Ozone,  and  Water i2mo,  *2  00 

Craig,  T.     Motion  of  a  Solid  in  a  Fuel.     (Science  Series  No.  49.) ....  i6mo,  o  50 

Wave  and  Vortex  Motion.     (Science  Series  No.  43.) i6mo,  o  50 

Cramp,  W.     Continuous  Current  Machine  Design Svo,  *2  50 

Crocker,  F.  B.     Electric  Lighting.     Two  Volumes.     Svo. 

Vol.    I.     The  Generating  Plant 3  00 

Vol.  II.     Distributing  Systems  and  Lamps 3  00 

Crocker,  F.  B.,  and  Arendt,  M.     Electric  Motors Svo,  *2  50 

Crocker,  F.  B.,  and  Wheeler,  S.  S.     The  Management  of  Electrical  Ma- 
chinery  i2mo,  *i  00 

Cross,  C.  F.,  Bevan,  E.  J.,  and  Sindall,  R.  W.     Wood  Pulp  and  Its  Applica- 
tions.    (Westminster  Series.) Svo,  *2  00 

Crosskey,  L.  R.     Elementary  Perspective Svo,  i  00 

Crosskey,  L.  R.,  and  Thaw,  J.    Advanced  Perspective Svo,  i  50 

Culley,  J.  L.      Theory  of  Arches.     (Science  Series  No.  S7.) i6mo,  o  50 

Davenport,  C.     The  Book,     (Westminster  Series.)  Svo,  *2  00 

Davies,  D.  C.     Metalliferous  Minerals  and  Mining Svo,  5  00 

Earthy  Minerals  and  Mining Svo,  5  00 

Davies,  E.  H.     Machinery  for  Metalliferous  Mines Svo,  S  00 

Davies,  F.  H.     Electric  Power  and  Traction Svo,  *2  00 

Dawson,  P.     Electric  Traction  on  Railways Svo,  *g  00 

Day,  C.     The  Indicator  and  Its  Diagrams i2mo,  *2  00 

Deerr,  N.     Sugar  and  the  Sugar  Cane Svo,  *8  00 

Deite,  C.     Manual  of  Soapmaking.     Trans,  by  S.  T.  King 4to,  *5  00 

De  la  Coux,  H.    The  Industrial  Uses  of  Water.     Trans,  by  A.  Morris .  Svo,  *4  50 

Del  Mar,  W.  A.     Electric  Power  Conductors Svo,  *2  00 

Denny,  G.  A.     Deep-level  Mines  of  the  Rand 4to,  *io  00 

Diamond  Drilling  for  Gold *5  00 

De  Roos,  J.  D.  C.     Linkages.     (Science  Series  No.  47.) , i6mo,  o  50 


*I 

50 

*I0 

oo 

0 

50 

*I 

oo 

*8 

oo 

6 

50 

*3 

50 

*3 

00 

*2 

00 

8        D.   VAN    NOSTRAXD    COMPANY'S   SHORT  TITLE   CATALOG 

Derr,  W.  L.     Block  Signal  Operation Oblong  i2mo, 

Desaint,  A.     Three  Hundred  Shades  and  How  to  Mix  Them 8vo, 

De  Varona,  A.     Sewer  Gases.     (Science  Series  No.  55.) i6mo, 

Devey,  R.  G.     Mill  and  Factory  Wiring.     (Installation  Manuals  Series.) 

i2mo, 

Dibdin,  W.  J.     Public  Lighting  by  Gas  and  Electricity 8vo, 

Purification  of  Sewage  and  Water Svo, 

Dichmann,  Carl.     Basic  Open-Hearth  Steel  Process i2mo, 

Dieterich,  K.     Analysis  of  Resins,  Balsams,  and  Gum  Resins Svo, 

Dinger,  Lieut.  H.  C.     Care  and  Operation  of  Naval  Machinery i2mo, 

Dixon,  D.  B.     Machinist's  and  Steam  Engineer's  Practical  Calculator. 

i6mo,  morocco,       i   25 
Doble,  W.  A.     Power  Plant  Construction  on  the  Pacific  Coast  {In  Press.) 
Dodd,  G.     Dictionary    of    Manufactures,    Mining,    Machinery,    and    the 

Industrial  Arts i2mo,       i  50 

Dorr,  B.  F.     The  Surveyor's  Guide  and  Pocket  Table-book. 

i6mo,  morocco,       2  00 

Down,  P.  B.     Handy  Copper  Wire  Table i6mo,     *i  00 

Draper,  C.  H.     Elementary  Text-book  of  Light,  Heat  and  Sound. . .  i2mo,       i  00 

Heat  and  the  Principles  of  Thermo-dynamics i2mo,       i  50 

Duckwall,  E,  W.     Canning  and  Preserving  of  Food  Products Svo,     *5  00 

Dumesny,  P.,  and  Noyer,  J.     Wood  Products,  Distillates,  and  Extracts. 

Svo,     *4  50 
Duncan,  W.  G.,  and  Penman,  D.     The  Electrical  Equipment  of  Collieries. 

Svo,     ■'=4  00 
Duthie,  A.  L.     Decorative  Glass  Processes.     (Westminster  Series.).   Svo,     *2  00 

Dyson,  S.  S.     Practical  Testing  of  Raw  Materials Svo,     *5  00 

Dyson,  S.  S.,  and  Clarkson,  S.  S.     Chemical  Works (In  Press.) 

Eccles,  R.  G.,  and  Duckwall,  E.  W.     Food  Preservatives Svo,  paper  o  50 

Eddy,  H.  T.     Researches  in  Graphical  Statics Svo,  i  50 

Maximum  Stresses  under  Concentrated  Loads Svo,  i  50 

Edgcumbe,  K.     Industrial  Electrical  Measuring  Instruments Svo,  *2  50 

Eissler,  M.     The  Metallurgy  of  Gold Svo,  7  50 

The  Hydrometallurgy  of  Copper ' Svo,  *4  50 

The  Metallurgy  of  Silver Svo,  4  od 

The  Metallurgy  of  Argentiferous  Lead Svo,  5  oo 

Cyanide  Process  for  the  Extraction  of  Gold Svo,  3  00 

A  Handbook  on  Modern  Explosives Svo,  5  00 

Ekin,  T.  C.     Water  Pipe  and  Sewage  Discharge  Diagrams folio,  *3  00 

Eliot,   C.   W.,  and   Storer,   F.   H.     Compendious  Manual   of  Qualitative 

Chemical  Analysis i2mo,  *i  25 

Elliot,  Major  G.  H.     European  Light-house  Systems Svo,  5  00 

Ennis,  Wm.  D.     Linseed  Oil  and  Other  Seed  Oils Svo,  *4  00 

Applied  Thermodynamics Svo  *4  50 

Flying  Machines  To-day i2mo,  *r  50 

Vapors  for  Heat  Engines i2mo,  *i  00 

Erfurt,  J.     Dyeing  of  Paper  Pulp.     Trans,  by  J.  Hubner Svo,  *7  50 

Erskine-Murray,  J.     A  Handbook  of  Wireless  Telegraphy Svo,  *3  50 

Evans,  C.  A.     Macadamized  Roads {In  Press.) 

Ewing,  A.  J.     Magnetic  Induction  in  Iron Svo,  *4  00 


D.   VAN   NOSTRAND   COMPANY'S   SHORT'  TITLE   CATALOG  9 

Fairie,  J.     Notes  on  Lead  Ores i2mo,  *i  oo 

Notes  on  Pottery  Clays i2mo,  *i  50 

Fairley,  W.,  and  Andre,  Geo.  J.     Ventilation  of  Coal  Mines.     (Science 

Series  No.  58.) i6mo,  o  50 

Fairweather,  W.  C.     Foreign  and  Colonial  Patent  Laws 8vo,  *3  00 

Fanning,  J.  T.     Hydraulic  and  Water-supply  Engineering 8vo,  *5  00 

Fauth,  P.      The  Moon   in   Modern    Astronomy.     Trans,   by   J.   McCabe. 

8vo,  *2  00 

Fay,  I.  W.     The  Coal-tar  Colors 8vo,  *4  00 

Fernbach,  R.  L.     Glue  and  Gelatine 8vo,  *3  00 

Chemical  Aspects  of  Silk  Manufacture i2mo,  *i  00 

Fischer,  E.     The  Preparation  of  Organic  CompaunfiVi.     Tir\t  >.  by  R.  V- 

Stanford lan*',,  *i  25 

Fish,  J.  C.  L.     Lettering  of  Working  Drawings l)klong  8V)ij  i  00 

Fisher,   H.  K.  C,  and  Darby,  W.  C.     Submarine  Cable  Testing 8vo,  *3  50 

Fiske,  Lieut.  B.  A.     Electricity  in  Theory  and  Practice 8vo,  2  50 

Fleischmann,  W.    The  Book  of  the  Dairy.  Trans,  by  C.  M.  Aikman.    8vo,  4  00 
Fleming,  J.  A.     The  Alternate-current  Transformer.     Two  Volumes.     8vo. 

Vol.    L     The  Induction  of  Electric  Currents *5  00 

Vol.  II.     The  Utilization  of  Induced  Currents *5  00 

Propagation  of  Electric  Currents 8vo,  *3  00 

Centenary  of  the  Electrical  Current 8vo,  *o  50 

Electric  Lamps  and  Electric  Lighting 8vo,  *3  00 

Electrical  Laboratory  Notes  and  Forms 4to,  *5  00 

A  Handbook  for  the  Electrical  Laboratory  and  Testing  Room.     Two 

Volumes 8vo,  each,  *5  00 

Fluery,  H.     The  Calculus  Without  Limits  or  Infinitesimals.     Trans,  by 

C.  0.  Mailloux (In  Press.) 

Flynn,  P.  J.     Flow  of  Water.     (Science  Series  No.  84.) i6mo,  o  50 

— - —  Hydraulic  Tables.     (Science  Series  No.  66.) i6mo,  o  50 

Foley,  N.     British  and  American  Customary  and  Metric  Measures,    folio,  *3  00 
Foster,  H.  A.     Electrical  Engineers'  Pocket-book.     (Sixth  Edition.) 

i2mo,  leather,  5  00 

Engineering  Valuation  of  Public  Utilities  and  Factories 8vo,  *3  00 

Foster,  Gen.  J.  G.     Submarine  Blasting  in  Boston  (Mass.)  Harbor..  .  .4to,  3  50 

Fowle,  F.  F.     Overhead  Transmission  Line  Crossings i2mo,  *i  50 

■ The  Solution  of  Alternating  Current  Problems 8vo  (In  Press.) 

Fox,  W.  G.     Transition  Curves.     (Science  Series  No.  no.) i6mo,  0  50 

Fox,  W.,  and  Thomas,  C.  W.     Practical  Course  in  Mechanical  Draw- 
ing  i2mo,  I  25 

Foye,  J.  C.     Chemical  Problems.     (Science  Series  No.  69.) i6mo,  o  50 

Handbook  of  Mineralogy.     (Science  Series  No.  86.) i6mo,  o  50 

Francis,  J.  B.     Lowell  Hydraulic  Experiments 4to,  15  00 

Freudemacher,    P.    W.     Electrical    Mining    Installations.     (Installation 

Manuals  Series  ) i2mo,  *i  00 

Fritsch,  J.     Manufacture  of  Chemical  Manures.     Trans,  by  D.  Grant. 

8vo,  *4  00 

Frye,  A.  I.     Civil  Engineers'  Pocket-book lamo,  leather, 

Fuller,  G.  W.      Investigations  into  the  Purification  of  the  Ohio  River. 

4to.  *io  00 

Furnell,  J.     Paints,  Colors,  Oils,  and  Varnishes. 8vo,  *i  00 


10     D.   VAN  NOSTRAND  COMPANY'S  SHORT  TITLE   CATALOG 

Gant,  L.  W.     Elements  of  Electric  Traction 8vo,     *2  50 

Garforth,  W.  E.     Rules  for  Recovering  Coal  Mines  after  Explosions  and 

Fires i2mo,  leather, 

Gaudard,  J.     Foundations.     (Science  Series  No.  34.). i6mo, 

Gear,  H.  B.,  and  Williams,  P.  F.     Electric  Central  Station  Distribution 

Systems 8  vo, 

Geerligs,  H.  C.  P.     Cane  Sugar  and  Its  Manufacture Svo, 

Geikie,  J.     Structural  and  Field  Geology Svo, 

Gerber,  N.    Analysis  of  Milk,  Condensed  Milk,  and  Infants'  Milk-Food.    Svo, 
Gerhard,  W.  P.     Sanitation,  Watersupply  and  Sewage  Disposal  of  Country 

Houses i2mo, 

Gas  Lighting.     (Science  Series  No.  iii.) i6mo, 

Household  Wastes.     (Science  Series  No.  97.) i6mo, 

House  Drainage.     ( Science  Series  No.  63.) i6mo, 

Sanitary  Drainage  of  Buildings.     (Science  Series  No.  93.) ....  i6mo, 

Gerhardi,  C.  W.  H.     Electricity  Meters Svo, 

Geschwind,    L.     Manufacture    of    Alum   and    Sulphates.     Trans,    by   C. 

Salter Svo, 

Gibbs,  W.  E.     Lighting  by  Acetylene i2mo, 

Physics  of  Solids  and  Fluids.     (Carnegie  Technical  School's  Text- 
books. I 

Gibson,  A.  H.     Hydraulics  and  Its  Application. Svo, 

Water  Hammer  in  Hydraulic  Pipe  Lines. i2mo, 

Gilbreth,  F.  B.     Motion  Study i2mo, 

Primer  of  Scientific  Management i2mo, 

Gillmore,  Gen.  Q.  A.     Limes,  Hydraulic  Cements  at  d  Mortars Svo, 

Roads,  Streets,  and  Pavements -. i2mo, 

Golding,  H.  A.     The  Theta-Phi  Diagram i2mo, 

Goldschmidt,  R.     Alternating  Current  Commutator  Motor Svo, 

Goodchild,  W.     Precious  Stones.     (Westminster  Series.) Svo, 

Goodeve,  T.  M.     Textbook  on  the  Steam-engine i2mo, 

Gore,  G.     Electrolytic  Separation  of  Metals Svo, 

Gould,  E.  S.     Arithmetic  of  the  Steam-engine.  . i2mo, 

Calculus.     (Science  Series  No.  112.) i6mo, 

High  Masonry  Dams.     (Science  Series  No.  22.) i6mo, 

Practical  Hydrostatics  and  Hydrostatic  Formulas.     (Science  Series 

No.  117.) i6mo,       0  50 

Grant,  J.     Brewing  and  Distilling.     (Westminster  Series.)  Svo  {In  Press.) 

Gratacap,  L.  P.     A  Popular  Guide  to  Minerals Svo  (/«  Press.) 

Gray,  J.     Electrical  Influence  Machines i2mo,       2  00 

Greenwood,  E.     Classified  Guide  to  Technical  and  Commercial  Books.  Svo,     *3  00 

Gregorius,  R.     Mineral  Waxes.     Trans,  by  C.  Salter i2mo,     *3  00 

Griffiths,  A.  B.     A  Treatise  on  Manures i2mo,       3  00 

Dental  Metallurgy Svo,     *3  50 

Gross,  E.     Hops Svo,     *4  50 

Grossman,  J.     Ammonia  and  Its  Compounds i2mo,     *i   25 

Groth,  L.  A.     Welding  and  Cutting  Metals  by  Gases  or  Electricity.  .  .   Svo,     *3  00 

Grover,  F.     Modern  Gas  and  Oil  Engines Svo,     *2  00 

Gruner,  A.     Power-loom  Weaving Svo,     *3  00 

Giildner,  Hugo.     Internal  Combustion  Engines.     Trans,  by  H.  Diederichs. 

4to,  *io  00 


I 

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50 

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50 

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*2 

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*2 

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00 

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D.   VAN    NOSTRAND   COMPANY'S   SHORT  TITLE  CATALOG      11 

Gunther,  C.  0.     Integration lamo,     *i  25 

Gurden,  R.  L.     Traverse  Tables folio,  half  morocco,     *7  50 

Guy,  A.  E.     Experiments  on  the  Flexure  of  Beams 8vo,     *i   25 

Haeder,    H.      Handbook    on    the    Steam-engine.      Trans,  by   H.  H.  P. 

Powles i2mo, 

Hainbach,  R.     Pottery  Decoration.     Trans,  by  C.  Slater i2mo, 

Haenig,  A.     Emery  and  Emery  Industry 8vo, 

Hale,  W.  J.     Calculations  of  General  Chemistry i2mo, 

Hall,  C.  H.     Chemistry  of  Paints  and  Paint  Vehicles i2mo. 

Hall,  R.  H.     Governors  and  Governing  Mechanism i2mo. 

Hall,  W.  S.     Elements  of  the  Differential  and  Integral  Calculus 8vo, 

Descriptive  Geometry Svo  volume  and  a  4to  atlas, 

Haller,  G.  F.,  and  Cunningham,  E.  T.     The  Tesla  Coil i2mo, 

Halsey,  F.  A.     Slide  Valve  Gears i2mo, 

The  Use  of  the  Slide  Rule.     (Science  Series  No.  114.) i6mo, 

Worm  and  Spiral  Gearing.     (Science  Series  No.  116.) i6mo, 

Hamilton,  W.  G.     Useful  Information  for  Railway  Men i6mo. 

Hammer,  W.  J.     Radium  and  Other  Radio-active  Substances Svo, 

Hancock,  H.     Textbook  of  Mechanics  and  Hydrostatics Svo, 

Hardy,  E.     Elementary  Principles  of  Graphic  Statics i2mo, 

Harrison,  W.  B.     The  Mechanics'  Tool-book i2mo, 

Hart,  J.  W.     External  Plumbing  Work Svo, 

Hints  to  Plumbers  on  Joint  Wiping Svo, 

Principles  of  Hot  Water  Supply Svo, 

Sanitary  Plumbing  and  Drainage Svo, 

Haskins,  C.  H.     The  Galvanometer  and  Its  Uses i6mo, 

Hatt,  J.  A.  H.     The  Colorist square  i2mo, 

Hausbrand,  E.     Drying  by  Means  of  Air  and  Steam.     Trans,  by   A.  C. 

Wright i2mo,     *2  00 

Evaporating,  Condensing  and  Cooling  Apparatus.     Trans,  by  A.  C. 

Wright Svo,     *5  00 

Hausner,  A.     Manufacture  of  Preserved  Foods  and  Sweetmeats.     Trans. 

by  A.  Morris  and  H.  Robson Svo,     *3  00 

Hawke,  W.  H.     Premier  Cipher  Telegraphic  Code 4to,     *5  00 

100,000  Words  Supplement  to  the  Premier  Code 4to,     *5  00 

Hawkesworth,  J.     Graphical  Handbook  for  Reinforced  Concrete  Design. 

4to,     *2   50 

Hay,  A.     Alternating  Currents Svo,     *2  50 

Electrical  Distributing  Networks  and  Distributing  Lines Svo,     *3  50 

Continuous  Current  Engineering Svo,     *2  50 

Heap,  Major  D.  P.     Electrical  Appliances Svo,       2  00 

Heaviside,  0.     Electromagnetic  Theory.     Two  Volumes Svo,  each,     *5  00 

Heck,  R.  C.  H.     The  Steam  Engine  and  Turbine Svo,     *5  00 

Steam-Engine  and  Other  Steam  Motors.     Two  Volumes. 

Vol.    I.     Thermodynamics  and  the  Mechanics Svo,     *3  50 

Vol.  II.     Form,  Construction,  and  Working Svo,     *5  00 

— —  Notes  on  Elementary  Kinematics Svo,  boards,     *i  00 

Graphics  of  Machine  Forces Svo,  boards,     *i  00 

Hedges,  K.     Modern  Lightning  Conductors Svo,       3  00 

Heermann,  P.     Dyers'  Materials.     Trans,  by  A.  C.  Wright i2mo,     *2  50 


3 

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*3 

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25 

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25 

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3 

50 

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12      D.    VAN    NOSTRAND  COMPANY'S   SHORT  TITLE   CATALOG 

Hellot,  Macquer  and  D'Apligny.     Art  of  Dyeing  Wool,  Silk  and  Cotton. 

8vo,     * 

Henrici,  0.     Skeleton  Structures 8vo, 

Hering,  D.  W.     Physics  for  College  Students (In  Preparation.) 

Hering-Shaw,  A.     Domestic  Sanitation  and  Plumbing.     Two  Vols. .  .  8vo,     * 

—  —  Elementary  Science Svo,     * 

Herrmann,  G.     The  Graphical  Statics  of  Mechanism.     Trans,  by  A.  P. 

Smith i2mo, 

Herzfeld,  J.     Testing  of  Yarns  and  Textile  Fabrics Svo,     * 

Hildebrandt,  A.     Airships,  Past  and  Present Svo,     * 

flildenbrand,  B.  W.     Cable-Making.     (Science  Series  No.  32.) i6mo, 

Hilditch,  T.  P.     A  Concise  History  of  Chemistry i2mo,     * 

Hill,  J.  W.     The  Purification  of   Public  Water  Supplies.      New  Edition. 

(In  Press.) 

Interpretation  of  Water  Analysis {In  Press.) 

Hiroi,  I.     Plate  Girder  Construction.     (Science  Series  No.  95.) i6mo, 

Statically-Indeterminate  Stresses i2mo, 

Hirshfeld,  C.  F.     Engineering  Thermodynamics.     (Science  Series  No.  45.) 

i6mo, 

Hobart,  H.  M.     Heavy  Electrical  Engineering Svo, 

Design  of  Static  Transformers i2mo, 

Electricity Svo, 

Electric  Trains Svo, 

— —  Electric  Propulsion  of  Ships Svo, 

Hobbs,  W.  R.  P.     The  Arithmetic  of  Electrical  Measurements i2mo, 

Hoff,  J.  N.     Paint  and  Varnish  Facts  and  Formulas i2mo, 

Hoff,  Com.  W.  B.     The  Avoidance  of  Collisions  at  Sea.  .  .  i6mo,  morocco. 

Hole,  W.     The  Distribution  of  Gas Svo, 

Holley,  A.  L.     Railway  Practice folio, 

Holmes,  A.  B.     The  Electric  Light  Popularly  Explained  ....  12.T10,  paper, 

Hopkins,  N.  M.     Experimental  Electrochemistry Svo, 

Model  Engines  and  Small  Boats i2mo, 

Hopkinson,  J.     Shoolbred,  J.  N.,  and  Day,  R.  E.     Dynamic  Electricity. 

(Science  Series  No.  71.) i6mo, 

Horner,  J.     Engineers'  Turning Svo, 

Metal  Turning i2mo, 

Toothed  Gearing i2mo, 

Houghton,  C.  E.     The  Elements  of  Mechanics  of  Materials i2mo, 

HouUevigue,  L.     The  Evolution  of  the  Sciences Svo, 

Howe,  G.     Mathematics  for  the  Practical  Man i2mo, 

Howorth,  J.     Repairing  and  Riveting  Glass,  China  and  Earthenware. 

Svo,  paper, 

Hubbard,  E.     The  Utilization  of  Wood-waste Svo, 

Humper,  W.     Calculation  of  Strains  in  Girders i2mo, 

Humphreys,  A.  C.     The  Business  Features  of  Engineering  Practice .  Svo, 

Hurst,  G.  H.     Handbook  of  the  Theory  of  Color Svo, 

Dictionary  of  Chemicals  and  Raw  Products Svo, 

Lubricating  Oils,  Fats  and  Greases Svo, 

Soaps Svo, 

Textile  Soaps  and  Oils Svo, 

Hurst,  H.  E.,  and  Lattey,  R.  T.     Text-book  of  Physics Svo,     *3  00 


0 

50 

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12 

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50 

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*3 

00 

*4 

00 

*5 

00 

*2 

50 

D.   VAN   NOSTRAND   COMPANY'S  SHORT   TITLE  CATALOG      13 

Hutchinson  R.  W.,  Jr.     Long  Distance  Electric  Power  Transmission .  1 2mo,     *3  oo 
Hutchinson,  R.  "W.,  Jr.,  and  Ihlseng,  M.  C.     Electricity  in  Mining   .  i2mo, 

{In  Press) 
Hutchinson,  W.  B.     Patents  and  How  to  Make  Money  Out  of  Them.  i2mo, 

Hutton,  W.  S.     Steam-boiler  Construction 8vo, 

Practical  Engineer's  Handbook 8vo, 

The  Works'  Manager's  Handbook 8vo, 

Hyde,  E.  W.     Skew  Arches.     (Science  Series  No.  15.) i6mo. 

Induction  Coils.     (Science  Series  No.  53.) i6mo. 

Ingle,  H.     Manual  of  Agricultural  Chemistry Svo, 

Innes,  C.  H.     Problems  in  Machine  Design i2mo, 

Air  Compressors  and  Blowing  Engines i2mo, 

Centrifugal  Pumps i2mo, 

The  Fan i2mo, 

Isherwood,  B.  F.     Engineering  Precedents  for  Steam  Machinery Svo, 

Ivatts,  E.  B.     Railway  Management  at  Stations Svo, 

Jacob,   A.,  and  Gould,  E,  S.     On  the  Designing  and  Construction  of 

Storage  Reservoirs.     (Science  Series  No.  6.) i6mo, 

Jamieson,  A.     Text  Book  on  Steam  and  Steam  Engines Svo, 

Elementary  Manual  on  Steam  and  the  Steam  Engine i2mo, 

Jannettaz,  E.     Guide  to  the  Determination  of  Rocks.     Trans,  by  G.  W. 

Plympton 1 2mo, 

Jehl,  F.     Manufacture  of  Carbons Svo, 

Jennings,  A.  S.     Commercial  Paints  and  Painting.     (Westminster  Series.) 

Svo  (In  Press.) 

Jennison,  F.  H.     The  Manufacture  of  Lake  Pigments Svo, 

Jepson,  G.     Cams  and  the  Principles  of  their  Construction Svo, 

Mechanical  Drawing Svo  {In  Preparation.) 

Jockin,  W.     Arithmetic  of  the  Gold  and  Silversmith i2mo, 

Johnson,  G.  L.     Photographic  Optics  and  Color  Photography Svo, 

Johnson,  J.  H.      Arc  Lamps  and  Accessory  Apparatus.     (Installation 

Manuals  Series.) i2mo,     *o  75 

Johnson,    T.    M.       Ship    Wiring    and    Fitting.       (Installation    Manuals 

Series) *o  75 

Johnson,  W.  H.     The  Cultivation  and  Preparation  of  Para  Rubber. .  Svo,     *3  00 

Johnson,  W.  McA.     The  Metallurgy  of  Nickel {In  Preparation.) 

Johnston,  J.  F.  W.,  and  Cameron,  C.     Elements  of  Agricultural  Chemistry 

and  Geology i2mo,       2  60 

Joly,  J.     Raidoactivity  and  Geology i2mo,     *3  00 

Jones,  H.  C.     Electrical  Nature  of  Matter  and  Radioactivity i2mo,     *2  00 

Jones,  M.  W.     Testing  Raw  Materials  Used  in  Paint i2mo,      *2  00 

Jones,  L.,  and  Scard,  F.  I.     Manufacture  of  Cane  Sugar Svo,      *5  00 

Joynson,  F.  H.     Designing  and  Construction  of  Machine  Gearing. .  .  .Svo,       2  00 
Jiiptner,  H.  F.  V.     Siderology:  The  Science  of  Iron Svo,     *$  00 

Kansas  City  Bridge 4to,  6  00 

Kapp,  G.     Alternate  Current  Machinery.     (Science  Series  No.  96.)  .i6mo,  o  50 

Electric  Transmission  of  Energy i2mo,  3  50 

Eeim,  A.  W.     Prevention  of  Dampness  in  Buildings Svo,  *2  00 


I 

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00 

7 

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6 

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U     D.   VAX   NOSTRAND   COMPANY'S  SHORT  TITLE   CATALOG 

Keller,  S.  S.     Mathematics  for  Engineering  Students.     i2mo,  half  leather. 

Algebra  and  Trigonometry,  with  a  Chapter  on  Vectors *i  75 

Special  Algebra  Edition *i  oo 

Plane  and  Solid  Geometry *i  25 

Analytical  Geometry  and  Calculus *2  00 

Kelsey,  W.  R.     Continuous-current  Dynamos  and  Motors 8vo,  *2  50 

Kemble,  W.  T.,  and  Underbill,  C.  R.     The  Periodic  Law  and  the  Hydrogen 

Spectrum. 8vo,  paper,  *o  50 

Kemp,  J.  F.     Handbook  of  Rocks 8vo,'    *i  50 

Kendall,  E.     Twelve  Figure  Cipher  Code 4to,  *i5  00 

Kennedy,  A.  B.  W.,  and  Thurston,  R.  H.     Kinematics  of  Machinery. 

(Science  Series  No.  54. ) i6mo,  0  50 

Kennedy,  A.  B.  "W.,  Unwin,  W.  C,  and  Idell,  F.  E.     Compressed  Air. 

(Science  Series  No.  106.) i6mo,  o  50 

Kennedy,  R.     Modern  Engines  and  Power  Generators.     Six  Volumes.    4to,  15  00 

Single  Volumes each,  3  00 

Electrical  Installations.     Five  Volumes 4to,  15  00 

Single  Volumes each,  3  50 

Flying  Machines;  Practice  and  Design i2mo,  *2  00 

Principles  of  Aeroplane  Construction 8vo,  *i   50 

Kennelly,  A.  E.     Electro-dynamic  Machinery 8vo,  i   50 

Kent,  W.     Strength  of  Materials.     (Science  Series  No.  41.) i6mo,  0  50 

Kershaw,  J.  B.  C.     Fuel,  Water  and  Gas  Analysis 8vo,  *2  50 

Electrometallurgy.     (Westminster  Series.) 8vo,  *2  00 

The  Electric  Furnace  in  Iron  and  Steel  Production i2mo,  *i  50 

Kinzbrunner,  C.     Alternate  Current  Windings 8vo,  *i   50 

Continuous  Current  Armatures 8vo,  *i   50 

Testing  of  Alternating  Current  Machines 8vo,  *2  00 

Kirkaldy,  W.  G.     David  Kirkaldy's  System  of  Mechanical  Testing. .  .  .4to,  10  00 

Kirkbride,  J.     Engraving  for  Illustration 8vo,  *i   50 

Kirkwood,  J.  P.     Filtration  of  River  Waters 4to,  7  50 

Klein,  J.  F.     Design  of  a  High-speed  Steam-engine 8vo,  *5  00 

Physical  Significance  of  Entropy 8vo,  *i  50 

Kleinhans,  F.  B.     Boiler  Construction 8vo,  3  00 

Knight,  R.-Adm.  A.  M.     Modem  Seamanship 8vo,  *7  50 

Half  morocco *9  00 

Knox,  W.  F.     Logarithm  Tables {In  Preparation.) 

Knott,  C.  G.,  and  Mackay,  J.  S.     Practical  Mathematics 8vo,  2  00 

Koester,  F.     Steam-Electric  Power  Plants 4to,  *5  00 

Hydroelectric  Developments  and  Engineering 4to,  *5  00 

Koller,  T.     The  Utilization  of  Waste  Products 8vo,  *3  50 

Cosmetics 8vo,  *2  50 

Elretchmar,  K.     Yarn  and  Warp  Sizing 8vo,  *4  00 

Lambert,  T.     Lead  and  its  Compounds 8vo,  *3  50 

Bone  Products  and  Manures 8vo,  *3  00 

•Lamborn,  L.  L.     Cottonseed  Products Svo,  *3  00 

——  Modern  Soaps,  Candles,  and  Glycerin Svo,  *7  50 

Lamprecht,  R.     Recovery  Work  After  Pit  Fires.     Trans,  by  C.  Salter .   8vo,  *4  00 
Lanchester,  F.  W.     Aerial  Flight.     Two  Volumes.     Svo. 

Vol.    I.     Aerodynamics *6  00 


D.   VAN   NOSTRAND   COMPANY'S   SHORT  TITLE  CATALOG      15 

Lanchester,  F.  W.     Aerial  Flight.     Vol.  II.     Aerodonetics *6  oo 

Lamer,  E.  T.     Principles  of  Alternating  Currents i2mo,     *i   25 

Larrabee,  C.  S.     Cipher  and  Secret  Letter  and  Telegraphic  Code.  . . .  i6mo,       o  60 

La  Rue,  B.  F.     Swing  Bridges.     (Science  Series  No.  107.) i6mo,       o  50 

Lassar-Cohn,  Dr.     Modern  Scientific  Chemistry.     Trans,  by  M.  M.  Patti- 

son  Muir i2mo,     *2  00 

Latimer,  L.  H.,  Field,  C.  J.,  and  Howell,  J.  W.     Incandescent  Electric 

Lighting.     (Science  Series  No.  57.) i6mo,       0  50 

Latta,  M.  N.     Handbook  of  American  Gas-Engineering  Practice 8vo,     *4  50 

American  Producer  Gas  Practice 4to,     *6  00 

Leask,  A.  R.     Breakdowns  at  Sea i2mo,       2  00 

Refrigerating  Machinery i2mo,       2  00 

Lecky,  S.  T.  S.     "  Wrinkles  "  in  Practical  Navigation 8vo,     *8  00 

Le  Doux,  M.     Ice-Making  Machines.      (Science  Series  No.  46.) ....  i6mo,       o  50 

Leeds,  C.  C.     Mechanical  Drawing  foi  Trade  Schools oblong  4to, 

High  School  Edition *i   25 

Machinery  Trades  Edition *2  00 

Lef^vre,  L.     Architectural  Pottery.      Trans,  by  H.  K.  Bird  and  W.  M. 

Binns 4to,     *7  50 

Lehner,  S.     Ink  Manufacture.     Trans,  by  A.  Morris  and  H.  Robson  .   Bvo,     *2  50 

Lemstrom,  S.     Electricity  in  Agriculture  and  Horticulture Bvo,     *i   50 

Le  Van,  W.  B.     Steam-Engine  Indicator.     (Science  Series  No.  78.) .  i6mo,       o  50 
Lewes,  V.  B.     Liquid  and  Gaseous  Fuels.     (Westminster  Series.).  .  .  .8vo,     *2  00 

Lewis,  L.  P.     Railway  Signal  Engineering Bvo,     *3  50 

Lieber,  B.  F.     Lieber's  Standard  Telegraphic  Code Bvo,  *io  00 

Code.     German  Edition Bvo,  *io  00 

Spanish  Edition Bvo,  *io  00 

French  Edition Bvo,  *io  00 

Terminal  Index Bvo,     *2  50 

Lieber's  Appendix folio,  *i5  00 

Handy  Tables 4to,     *2  50 

Bankers  and  Stockbrokers'  Code  and  Merchants  and  Shippers'  Blank 

Tables Bvo,  *i5  00 

100,000,000  Combination  Code Bvo,  *io  00 

Engineering  Code Bvo,  *i2  50 

Livermore,  V.  P.,  and  Williams,  J.     How  to  Become  a  Competent  Mo::or- 

man i  imo,     *  i  00 

Livingstone,  R.     Design  and  Construction  of  Commutators Bvo,     *2  25 

Lobben,  P.     Machinists'  and  Draftsmen's  Handbook Bvo,       2  50 

Locke,  A.  G.  and  C.  G.     Manufacture  of  Sulphuric  Acid 8vo,     10  00 

Lockwood,  T.  D.     Electricity,  Magnetism,  and  Electro-telegraph  .  .  .  .Bvo,       2  50 

Electrical  Measurement  and  the  Galvanometer i2mo,       i  50 

Lodge,  0.  J.     Elementary  Mechanics i2mo,       i  50 

■ Signalling  Across  Space  without  Wires Bvo,     *2  00 

Lord,  R.  T.     Decorative  and  Fancy  Fabrics Bvo,     *3  50 

Loring,  A.  E.     A  Handbook  of  the  Electromagnetic  Telegraph i6mo,       o  50 

Handbook.     (Science  Series  No.  39.) i6mo,       o  50 

Loewenstein,  L.  C,  and  Crissey,  C.  P.     Centrifugal  Pumps *4  50 

Lucke,  C.  E.     Gas  Engine  Design Bvo,     *3  00 

Power  Plants:  their  Design,  Efficiency,  and  Power  Costs.     2  vols. 

{In  Preparation.) 


16     D.   VAN   NOSTRAND   COMPANY'S  SHORT  TITLE   CATALOG 

Lunge,  G.     Coal-tar  and  Ammonia.     Two  Volumes 8vo,  *i5  oo 

Manufacture  of  Sulphuric  Acid  and  Alkali.     Four  Volumes 8vo, 

Vol.     L     Sulphuric  Acid.     In  two  parts *i5  oo 

Vol.    IL     Salt  Cake,  Hydrochloric  Acid  and  Leblanc  Soda.      In  two 

parts *  1 5  oo 

Vol.  III.     Ammonia  Soda *io  oo 

Vol.  IV.    Electrolytic  Methods {In  Press.) 

Technical  Chemists'  Handbook i2mo,  leather,     *3  50 

Technical  Methods  of  Chemical  Analysis.     Trans,  by  C.  A.  Keane. 

in  collaboration  with  the  corps  of  speciaHsts. 

Vol.    I.     In  two  parts 8vo, 

Vol.  n.     In  two  parts Bvo, 

Vol.  in {In  Preparation.) 

Lupton,  A.,  Parr,  G.  D.  A.,  and  Perkin,  H.     Electricity  as  Applied  to 

Mining Bvo, 

Luquer,  L.  M.     Minerals  in  Rock  Sections 8vo, 

Macewen,  H.  A.     Food  Inspection 8vo, 

Mackenzie,  N.  F.     Notes  on  Irrigation  Works 8vo, 

Mackie,  J.     How  to  Make  a  Woolen  Mill  Pay 8vo, 

Mackrow,  C.     Naval  Architect's  and  Shipbuilder's  Pocket-book. 

i6mo,  leather, 

Maguire,  Wm.  R.     Domestic  Sanitary  Drainage  and  Plumbing 8vo, 

Mallet,  A.     Compound  Engines.     Trans,  by  R.  R.  Buel.     (Science  Series 

No.  10.) i6mo, 

Mansfield,  A.  N.     Electro-magnets.     (Science  Series  No.  64.) i6mo, 

Marks,  E.  C.  R.     Construction  of  Cranes  and  Lifting  Machinery.  .  .  .  i2mo, 

Construction  and  Working  of  Pumps i2mo, 

Manufacture  of  Iron  and  Steel  Tubes i2mo, 

Mechanical  Engineering  Materials i2mo, 

Marks,  G.  C.     Hydraulic  Power  Engineering 8vo, 

Inventions,  Patents  and  Designs i2mo, 

Marlow,  T.  G.     Drying  Machinery  and  Practice 8vo, 

Marsh,  C.  F.     Concise  Treatise  on  Reinforced  Concrete 8vo, 

Marsh,  C.  F.,  and  Dunn,  W.     Reinforced  Concrete 4to, 

Marsh,  C.  F.,  and  Dunn,  W.      Manual  of  Reinforced  Concrete  and  Con- 
crete Block  Construction i6mo,  morocco,     *2  50 

Marshall,  W.  J.,  and  Sankey,  H.  R.     Gas  Engines.     (Westminster  Series.) 

8vo,     *2  00 

Martin.  G,     Triumphs  and  Wonders  of  Modem  Chemistry 8vo,     *2  00 

Massie,  W.  W.,  and  Underbill,  C.  R.     Wireless  Telegraphy  and  Telephony. 

i2mo,     *i  00 
Matheson,  D.     Australian  Saw-Miller's  Log  and  Timber  Ready  Reckoner. 

i2mo,  leather,       i  50 

Mathot,  R.  E.     Internal  Combustion  Engines 8vo, 

Maurice,  W.     Electric  Blasting  Apparatus  and  Explosives 8vo, 

• Shot  Firer's  Guide 8vo, 

Maxwell,  J.  C.     Matter  and  Motion.     (Science  Series  No.  36.) i6mo, 

Maxwell,  W.  H.,  and  Brown,  J.  T.     Encyclopedia  of  Municipal  and  Sani- 
tary Engineering 4to, 

Mayer,  A.  M.     Lecture  Notes  on  Physics Bvo, 


*i5 

00 

*i8 

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D,   VAN   NOSTRAND   COMPANY'S  SHORT  TITLE  CATALOG      17 

McCuUough,  R.  S.     Mechanical  Theory  of  Heat 8vo,       3  50 

Mcintosh,  J.  G.     Technology  of  Sugar 8vo,     *4  50 

Industrial  Alcohol 8vo,     *3  00 

Manufacture  of  Varnishes  and  Kindred  Industries.     Three  Volumes. 

Svo. 

Vol.     I.     Oil  Crushing,  Refining  and  Boiling *3  50 

Vol.    II.     Varnish  Materials  and  Oil  Varnish  Making *4  00 

Vol.  III.     Spirit  Varnishes  and  Materials *4  5© 

McKnight,  J.  D.,  and  Brown,  A.  W.     Marine  Multitubular  Boilers *i   50 

McMaster,  J.  B.     Bridge  and  Tunnel  Centres.      (Science  Series  No.  20.) 

i6mo, 

McMechen,  F.L.      Tests  for  Ores,  Minerals  and  Metals i2mo, 

McNeill,  B.     McNeill's  Code Svo, 

McPherson,  J.  A.     Water- works  Distribution Svo, 

Melick,  C.  W.     Dairy  Laboratory  Guide i2mo, 

Merck,  E.     Chemical  Reagents;  Their  Purity  and  Tests Svo, 

Merritt,  Wm.  H.     Field  Testing  for  Gold  and  Silver i6mo,  leather, 

Meyer,  J.  G.  A.,  and  Pecker,  C.  G.     Mechanical  Drawing  and  Machine 

Design 4to, 

Michell,  S.     Mine  Drainage Svo, 

Mierzinski,  S.     Waterproofing  of  Fabrics.     Trans,  by  A.  Morris  and  H. 

Robson Svo, 

Miller,  E.  H.     Quantitative  Analysis  for  Mining  Engineers Svo, 

Miller,  G.  A.     Determinants.     (Science  Series  No.  105.) i6mo, 

Milroy,  M.  E.  W.     Home  Lace-making i2mo, 

Minifie,  W.     Mechanical  Drawing Svo, 

Mitchell,  C.  A.,  and  Prideaux,  R.  M.     Fibres  Used  in  Textile  and  Allied 

Industries Svo, 

Modern  Meteorology i2mo, 

Monckton,  C.  C.  F.     Radiotelegraphy.     (Westminster  Series.) Svo, 

Monteverde,  R.  D,     Vest  Pocket  Glossary  of  English-Spanish,  Spanish- 
English  Technical  Terms 64mo,  leather,     *i  00 

Moore,  E.  C.  S.     New  Tables  for  the  Complete  Solution  of  Ganguillet  and 

Kutter's  Formula Svo,     *5  00 

Morecroft,  J.  H.,  and  Hehre,  F.  W.     Short  Course  in  Electrical  Testing. 

Svo,     *i  50 
Moreing,  C.  A.,  andNeal,  T.    New  General  and  Mining  Telegraph  Code,  Svo,     *5  00 

Morgan,  A.  P.     Wireless  Telegraph  Apparatus  for  Amateurs i2mo,     *i  50 

Moses,  A.  J.     The  Characters  of  Crystals Svo,     *2  00 

Moses,  A.  J.,  and  Parsons,  C.  L.     Elements  of  Mineralogy Svo,     *2  50 

Moss,  S.  A.  Elements  of  Gas  Engine  Design.  (Science  Series  No.i2i.)i6mo,       u  50 

The  Lay-out  of  Corliss  Valve  Gears.    (Science  Series  No.  119.).  i6mo,       o  50 

Mullin,  J.  P.     Modern  Moulding  and  Pattern- making i2mo,       2  50 

Munby,  A.  E.     Chemistry  and  Physics  of  Building  Materials.     (Westmin- 
ster Series.) Svo,     *2  00 

Murphy,  J.  G.     Practical  Mining i6mo,       i  00 

Murray,  J.  A.     Soils  and  Manures.     (Westminster  Series.) Svo,     *2  00 

Naquet,  A.     Legal  Chemistry i2mo,       2  00 

Nasmith,  J.     The  Student's  Cotton  Spinning Svo,       3  00 

Recent  Cotton  Mill  Construction i2mo,       2  00 


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10 

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*3 

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*I0 

oo 

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50 

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50 

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*o 

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*3 

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18     D.  VAN   NOSTRAND   COMPANY'S   SHORT  TITLE   CATALOG 

Neave,  G.  B,.  and  Heilbron,  I.  M.     Identification  of  Organic  Compounds. 

i2mo, 

Neilson,  R.  M.     Aeroplane  Patents 8vo, 

Nerz,  F.     Searchlights.     Trans,  by  C.  Rodgers 8vo, 

Nesbit,  A.  F.     Electricity  and  Magnetism (In  Preparation.) 

Neuberger,  H.,  and  Noalhat,  H.     Technology  of  Petroleum.     Trans,  by  J. 

G.  Mcintosh 8 vo, 

Newall,  J.  W.     Drawing,  Sizing  and  Cutting  Bevel-gears 8vo, 

Nicol,  G.     Ship  Construction  and  Calculations 8vo, 

Nipher,  F.  E.     Theory  of  Magnetic  Measurements izmo, 

Nisbet,  H.     Grammar  of  Textile  Design 8vo, 

Nolan,  H.     The  Telescope.     (Science  Series  No.  51.) i6mo, 

Noll,  A.     How  to  Wire  Buildings i2mo, 

Nugent,  E.     Treatise  on  Optics izmo, 

O'Connor,  H.     The  Gas  Engineer's  Pocketbook i2mo,  leather, 

Petrol  Air  Gas i2mo, 

Ohm,  G.   S.,  and  Lockwood,  T.   D.     Galvanic  Circuit.     Translated  by 

William  Francis.     (Science  Series  No.  102.) i6mo, 

Olsen,  J.  C.     Text-book  of  Quantitative  Chemical  Analysis 8vo, 

Olsson,  A.     Motor  Control,  in  Turret  Turning  and  Gun  Elevating.     (U.  S. 

Navy  Electrical  Series,  No.  i.) i2mo,  paper, 

Oudin,  M.  A.     Standard  Polyphase  Apparatus  and  Systems 8vo, 

Palaz,  A.     Industrial  Photometry.     Trans,  by  G.  W.  Patterson,  Jr..  .8vo,  *4  00 

Pamely,  C.     Colliery  Manager's  Handbook Svo,  *io  00 

Parr,  G.  D.  A.     Electrical  Engineering  Measuring  Instruments Svo,  *3  50 

Parry,  E.  J.     Chemistry  of  Essential  Oils  and  Artificial  Perfumes.  .  .   Svo,  *5  00 

Foods  and 'Drugs.     Two  Volumes. 8vo, 

Vol.    I.     Chemical  and  Microscopical  Analysis  of  Foods  and  Drugs.  *7  50 

Vol.  II.     Sale  of  Food  and  Drugs  Act *3  00 

Parry,  E.  J.,  and  Coste,  J.  H.     Chemistry  of  Pigments Svo,  *4  50 

Parry,  L.  A.     Risk  and  Dangers  of  Various  Occupations Svo,  *3  00 

Parshall,  H.  F.,  and  Hobart,  H.  M.     Armature  Windings 4to,  *7  50 

Electric  Railway  Engineering 4to,  *io  00 

Parshall,  H.  F.,  and  Parry,  E.     Electrical  Equipment  of  Tramways..  .  .  (In  Press.) 

Parsons,  S.  J.     Malleable  Cast  Iron Svo,  *2  50 

Partington,  J.  R.     Higher  Mathematics  for  Chemical  Students   .i2mo,  *2  00 

Passmore,  A.  C.     Technical  Terms  Used  in  Architecture Svo,  *3  50 

Patterson,  D.     The  Color  Printing  of  Carpet  Yarns Svo,  *3  50 

Color  Matching  on  Textiles Svo,  *3  00 

The  Science  of  Color  Mixing Svo,  *3  00 

Paulding,  C.  P.     Condensation  of  Steam  in  Covered  and  Bare  Pipes.   Svo,  *2  00 

Transmission  of  Heat  through  Cold-storage  Insulation i2mo,  *i  00 

Peirce,  B.     System  of  Analytic  Mechanics 4to,  10  00 

Pendred,  V.     The  Railway  Locomotive.     (Westminster  Series.) Svo,  *2  00 

Perkin,  F.  M.     Practical  Methods  of  Inorganic  Chemistry i2mo,  *i   00 

Perrigo,  0.  E.     Change  Gear  Devices Svo,  i   00 

Perrine,  F.  A.  C.     Conductors  for  Electrical  Distribution Svo,  *3  50 

Perry,  J.     Applied  Mechanics Svo,  *2  50 

Petit,  G.     White  Lead  and  Zinc  White  Paints Svo,  *i   50 


D.   VAN   NOSTRAND   COMPANY'S   SHORT  TITLE   CATALOG      19 

Petit,  R.     How  to  Build  an  Aeroplane.     Trans,  by  T.  O'B.  Hubbard,  and 

J.  H.  Ledeboer 8vo,  *i  50 

Pettit,  Lieut.  J.  S.     Graphic  Processes.     (Science  Series  No.  76.) .  .  .  i6mo,  o  50 
Philbrick,  P.  H.     Beams  and  Girders.     (Science  Series  No.  88.) .  .  .  i6mo, 

Phillips,  J.     Engineering  Chemistry 8vo,  *4  50 

Gold  Assaying 8vo,  *2  50 

Dangerous  Goods 8vo,  3  50 

Phin,  J.     Seven  Follies  of  Science i2mo,  *i  25 

Pickworth,  C.  N.     The  Indicator  Handbook.     Two  Volumes.  .  i2mo,  each,  i  50 

• Logarithms  for  Beginners i2mo,  boards,  o  50 

The  Slide  Rule i2mo,  i  00 

Plattner's  Manual  of  Blow-pipe  Analysis.    Eighth  Edition,  revised.    Trans. 

by  H.  B.  Cornwall 8vo,  *4  00 

Pl'/mpton,  G.  W.    The  Aneroid  Barometer.    (Science  Series  No.  35.)    i6mo,  o  50 

How  to  become  an  Engineer.      (Science  Series  No.  100.) i6mo,  o  50 

Van  Nostrand's  Table  Book.      (Science  Series  No.  104.) i6mo,  o  50 

Pochet,  M.  L.     Steam  Injectors.     Translated  from  the  French.     (Science 

Series  No.  29.) i6mo,  o  50 

Pocket  Logarithms  to  Four  Places.     (Science  Series  No.  65.) i6mo,  o  50 

leather,  i  00 

Polleyn,  F.     Dressings  and  Finishings  for  Textile  Fabrics 8vo,  *3  co 

Pope,  F.  L.     Modern  Practice  of  the  Electric  Telegraph 8vo,  i   50 

Popplewell,  W.  C.  Elementary  Treatise  on  Heat  and  Heat  Engines.  .i2mo,  *3  00 

Prevention  of  Smoke 8vo,  *3  50 

Strength  of  Materials 8vo,  *i   75 

Potter,  T.     Concrete 8vo,  *3  00 

Practical  Compounding  of  Oils,  Tallow  and  Grease , Svo,  *3  50 

Practical  Iron  Founding i2mo,  i  50 

Pray,  T.,  Jr.     Twenty  Years  with  the  Indicator Svo,  2  50 

Steam  Tables  and  Engine  Constant 8vo,  2  00 

Calorimeter  Tables 8vo,  i  00 

Preece,  W.  H.     Electric  Lamps (In  Press.) 

Prelini,  C.     Earth  and  Rock  Excavation Svo,  *3  00 

Graphical  Determination  of  Earth  Slopes Svo,  *2  00 

Tunneling.     New  Edition Svo,  *3  00 

Dredging.     A   Practical   Treatise Svo,  *3  00 

Prescott,  A.  B.     Organic  Analysis Svo,  5  00 

Prescott,  A.  B.,  and  Johnson,  0.  C.     Qualitative  Chemical  Analysis.  .   Svo,  *3  50 
Prescott,  A.  B.,  and  Sullivan,  E.  C.     First  Book  in  Qualitative  Chemistry. 

i2mo,  *i   50 

Pritchard,  0.  G.     The  Manufacture  of  Electric-light  Carbons.    Svo,  paper,  *o  60 
Pullen,   W.   W.   F.     Application   of  Graphic   Methods  to   the  Design  of 

Structures i2mo,  *2  50 

— Injectors:  Theory,  Construction  and  Working i2mo,  *i   50 

Pulsifer,  W.  H.     Notes  for  a  History  of  Lead Svo,  4  00 

Purchase,  W.  R.     Masonry i2mo,  *3  00 

Putsch,  A.     Gas  and  Coal-dust  Firing Svo,  *3  00 

Pynchon,  T.  R.     Introduction  to  Chemical  Physics Svo,  3  00 

Rafter  G.  W.     Mechanics  of  Ventilation.     (Science  Series  No.  33.) .  i6mo,  o  50 
Potable  Water.     (Science  Series  No.  103.) i6mo,  o  50 


0 

50 

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00 

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00 

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00 

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5 

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5 

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00 

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50 

*4 

50 

*i 

50 

20      D    VAN   N03TRAND   COMPANY'S  SHORT   TITLE  CATALOG 

Rafter,  G.  W.     Treatment  of  Septic  Sewage.     (Science  Series  No.  ii8. ) 

i6mo, 
Rafter,  G.  W.,  and  Baker,  M.  N.     Sewage  Disposal  in  the  United  States ,  4to, 

Raikes,  H.  P.     Sewage  Disposal  Works 8vo, 

Railway  Shop  Up-to-Date 4to, 

Ramp,  H.  M.     Foundry  Practice {In  Press.) 

Randall,  P.  M.     Quartz  Operator's  Handbook i2mo, 

Randau,  P.     Enamels  and  Enamelling 8v*^o, 

Rankine,  W.  J.  M.     Applied  Mechanics Svo, 

Civil  Engineering Svo, 

Machinery  and  Millwork Svo, 

The  Steam-engine  and  Other  Prime  Movers Svo, 

Useful  Rules  and  Tables Svo, 

Rankine,  W.  J.  M.,  and  Bamber,  E.  F.     A  Mechanical  Text-book.    .  .Svo, 
Raphael,  F.  C.     Localization  of  Faults  in  Electric  Light  and  Power  Mains. 

Svo, 

Rathbone,  R.  L.  B.     Simple  Jewellery Svo, 

Rateau,  A.     Flow  of  Steam  through  Nozzles  and  Orifices.     Trans,  by  H. 

B.  Brydon Svo, 

Rausenberger,  F.     The  Theory  of  the  Recoil  of  Guns Svo, 

Rautenstrauch,  W.     Notes  on  the  Elements  of  Machine  Design. Svo,  boards, 
Rautenstrauch,  W,,  and  Williams,  J.  T.     Machine  Drafting  and  Empirical 
Design. 

Part   I.  Machine  Drafting Svo,     *i  25 

Part  IL  Empirical  Design (In  Preparation.) 

Raymond,  E.  B.     Alternating  Current  Engineering i2mo, 

Rayner,  H.     Silk  Throwing  and  Waste  Silk  Spinning Svo, 

Recipes  for  the  Color,  Paint,  Varnish,  Oil,  Soap  and  Drysaltery  Trades  Svo, 

Recipes  for  Flint  Glass  Making i2mo. 

Redwood,  B.     Petroleum.     (Science  Series  No.  92.) i6mo, 

Reed's  Engineers'  Handbook Svo, 

Key  to  the  Nineteenth  Edition  of  Reed's  Engineers'  Handbook.   Svo, 

Useful  Hints  to  Sea-going  Engineers i2mo, 

Marine  Boilers i2mo, 

Reinhardt,  C.  W.     Lettering  for  Draftsmen,  Engineers,  and  Students. 

oblong  4to,  boards, 

The  Technic  of  Mechanical  Drafting oblong  4to,  boards. 

Reiser,  F.     Hardening  and  Tempering  of  Steel.     Trans,  by  A.  Morris  and 

H.  Robson i2mo,     *2  05 

Reiser,  N.     Faults  in  the  Manufacture  of  Woolen  Goods.     Trans,  by  A. 

Morris  and  H.  Robson Svo,     *2  50 

Spinning  and  Weaving  Calculations Svo,     *5  00 

Renwick,  W.  G.     Marble  and  Marble  Working Svo,       5  00 

Reynolds,    0.,   and   Idell,    F.    E.     Triple   Expansion   Engines.     (Science 

Series  No.  99.) i6mo,       o  50 

Rhead,  G.  F.     Simple  Structural  Woodwork i2mo,     *i  00 

Rice,  J.  M.,  and  Johnson,  W.  W.     A  New  Method  of  Obtaining  the  Differ- 
ential of  Functions i2mo,       o  50 

Richardson,  J.     The  Modern  Steam  Engine Svo,     *3  50 

Richardson,  S.  S.     Magnetism  and  Electricity i2mo,     *2  00 

Rideal,  S.     Glue  and  Glue  Testing. Svo,     *4  00 


2 

50 

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50 

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50 

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50 

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00 

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D.   VAN    NOSTRAND   COMPANY'S   SHORT  TITLE   CATALOG      21 

Rings,  F.     Concrete  in  Theory  and  Practice i2mo,  *2  50 

Ripper,  W.     Course  of  Instruction  in  Machine  Drawing folio,  *6  00 

Roberts,  F.  C.     Figure  of  the  Earth.     (Science  Series  No.  79.) i6mo,  o  50 

Roberts,  J.,  Jr.     Laboratory  Work  in  Electrical  Engineering 8vo,  *2  00 

Robertson,  L.  S.     Water- tube  Boilers 8vo,  3  00 

Robinson,  J.  B.     Architectural  Composition 8vo,  *2  50 

Robinson,  S.  W.     Practical  Treatise  on  the  Teeth  of  Wheels.     (Science 

Series  No.  24.) i6mo,  o  50 

• Railroad  Economics.     (Science  Series  No.  59.) i6mo,  o  50 

Wrought  Iron  Bridge  Members.     (Science  Series  No.  60.) i6mo,  o  50 

Robson,  J.  H.     Machine  Drawing  and  Sketching 8vo,  *i  50 

Poebling,  J   A.     Long  and  Short  Span  Railway  Bridges folio,  25  00 

Rogers,  A.     A  Laboratory  Guide  of  Industrial  Chemistry i2mo,  *i  50 

Rogers,  A.,  and  Aubert,  A.  B.     Industrial  Chemistry (In  Press.) 

Rogers,  F.     Magnetism  of  Iron  Vessels.     (Science  Series  No.  30.) .  .  i6mo,  o  50 

Rollins,  W.     Notes  on  X-Light 8vo,  *5  00 

Rose,  J.     The  Pattern-makers'  Assistant 8vo,  2  50 

Key  to  Engines  and  Engine-running i2mo,  2  50 

Rose,  T.  K.     The  Precious  Metals.     (Westminster  Series.) 8vo,  *2  00 

Rosenhain,  W.     Glass  Manufacture.     (Westminster  Series.) 8vo,  *2  00 

Ross,  W.  A.     Plowpipe  in  Chemistry  and  Metallurgy i2mo,  *2  00 

Rossiter,  J.  T.     Steam  Engines.     (Westminster  Series.)..  ..8vo  (In  Press.) 

Pumps  and  Pumping  Machinery.     (Westminster  Series. )..8vo  (In  Press.) 

Roth.     Physical  Chemistry 8vo,  *2  00 

Rouillion,  L.     The  Economics  of  Manual  Training 8vo,  2  00 

Rowan,  F.  J.     Practical  Physics  of  the  Modern  Steam-boiler 8vo,  7  50 

Rowan,   F.    J.,   and  Idell,   F.    E.     Boiler   Incrustation   and   Corrosion. 

(Science  Series  No.  27.) i6mo,  o  50 

Roxburgh,  W.     General  Foundry  Practice 8vo,  *3   50 

Ruhmer,  E.     Wireless  Telephony.     Trans,  by  J.  Erskine-Murray.  .  .  .8vo,  *3  50 

Russell,  A.     Theory  of  Electric  Cables  and  Networks 8vo,  *3  00 

Sabine,  R.     History  and  Progress  of  the  Electric  Telegraph i2mo,  i  25 

Saeltzer  A.     Treatise  on  Acoustics i2mo,  i  00 

Salomons,  D.     Electric  Light  Installations.     i2mo. 

Vol.    I.     The  Management  of  Accumulators 2  50 

Vol.  11.     Apparatus 2  25 

Vol.  III.     Applications i  50 

Sanford,  P.  G.     Nitro-explosives 8vo,  *4  00 

Saunders,  C.  H.     Handbook  of  Practical  Mechanics i6mo,  i  00 

leather,  i   25 

Saunnier,  C.     Watchmaker's  Handbook i2mo,  3  00 

SayerS;  H.  M.     Brakes  for  Tram  Cars 8vo,  *i   25 

Scheele,  C.  W.     Chemical  Essays 8vo,  *2  00 

Schellen,  H.     Magneto-electric  and  Dynamo-electric  Machines 8vo,  5  00 

Scherer,  R.     Casein.     Trans,  by  C.  Salter 8vo,  *3  00 

Schidrowitz,  P.     Rubber,  Its  Production  and  Industrial  Uses 8vo,  *5  00 

Schmall,  C.  N.     First  Course  in  Analytic  Geometry,  Plane  and  Solid. 

i2mo,  half  leather,  *i  75 

Schmall,  C.  N.,  and  Shack,  S.  M.     Elements  of  Plane  Geometry.  .  .  .  i2mo,  *i   25 

Schmeer,  L.     Flow  of  Water 8vo,  *3  00 


22      D.    V^4N   NOSTRAND   COMPANY'S  SHORT  TITLE  CATALOG 

Schumann,  F.     A  Manual  of  Heating  and  Ventilation i2mo,  leather,        i   50 

Schwarz,  E.  H.  L.     Causal  Geology 8vo,     *2  50 

Schweizer,  V.,  Distillation  of  Resins 8vo,     *3  50 

Scott,  W.  W.     Qualitative  Analysis.     A  Laboratory  Manual 8vo,     *i  50 

Scribner,  J.  M.     Engineers'  and  Mechanics'  Companion  .  .   i6mo,  leather,       i   50 

Searle,  A.  B.     Modern  Brickmaking Bvo,     *5  00 

Searle,  G.  M.     "  Sumners'  Method."     Condensed  and  Improved.    (Science 

Series  No.  124.) i6mo,       o  50 

Seaton,  A.  E.     Manual  of  Marine  Engineering Svo,       6  00 

Seaton,  A.  E.,  and  Rounthwaite,  H.  M.     Pocket-book  of  Marine  Engineer- 
ing  i6mo,  leather,      3  00 

Seeligmann,  T.,  Torrilhon,  G.  L.,  and  Falconnet,  H.     India  Rubber  and 

Gutta  Percha.     Trans,  by  J.  G.  Mcintosh Svo, 

Seidell,  A.     Solubilities  of  Inorganic  and  Organic  Substances Svo, 

Sellew,  W.  H.     Steel  Rails 4to  (/n  Press.) 

Senter,  G.     Outlines  of  Physical  Chemistry i2mo. 

Sever,  G.  F.     Electric  Engineering  Experiments Svo,  boards. 

Sever,  G.  F.,  and  Townsend,  F.     Laboratory  and  Factory  Tests  in  Electrical 

Engineering Svo, 

Sewall,  C.  H.     Wireless  Telegraphy Svo, 

Lessons  in  Telegraphy i2mo, 

Sewell,  T.     Elements  of  Electrical  Engineering Svo, 

The  Con:truction  of  Dynamos Svo, 

Sexton,  A.  H.     Fuel  and  Refractory  Materials i2mo, 

Chemistry  of  the  Materials  of  Engineering i2mo, 

Alloys  (Non-Ferrous ) gvo, 

The  Metallurgy  of  Iron  and  Steel Bvo, 

Seymour,  A.     Practical  Lithography Svo, 

— —  Modern  Printing  Inks Svo, 

Shaw,  Henry  S.  H.     Mechanical  Integrators.     (Science  Series  No.  83.) 

i6mo, 

Shaw,  P.  E.     Course  of  Practical  Magnetism  and  Electricity Svo, 

Shaw,  S.     History  of  the  Staffordshire  Potteries Svo, 

Chemistry  of  Compounds  Used  in  Porcelain  Manufacture Svo, 

Shaw,  W.  N.      Forecasting  Weather Svo  {In  Press.) 

Sheldon,  S.,  and  Hausmann,  E.     Electric  Traction i2mo, 

Direct  Current  Machines i2mo, 

Alternating  Current  Machines i2mo, 

Electric  Traction  and  Transmission  Engineering Svo, 

Sherriff,  F.  F.     Oil  Merchants'  Manual i2mo, 

Shields,  J.  E.     Notes  on  Engineering  Construction i2mo. 

Shock,  W.  H.     Steam  Boilers 4to,  half  morocco, 

Shreve,  S.  H.     Strength  of  Bridges  and  Roofs Svo, 

Shunk,  W.  F.     The  Field  Engineer i2mo,  morocco, 

Simmons,  W.  H.,  and  Appleton,  H.  A.    Handbook  of  Soap  Manufacture 

Svo, 

Simmons,  W.  H.,  and  Mitchell,  C.  A.     Edible  Fats  and  Oils Svo, 

Simms,  F.  W.     The  Principles  and  Practice  of  Leveling Svo, 

Practical  Tunneling Svo, 

Simpson,  G.     The  Naval  Constructor i2mo,  morocco, 

Sinclair,  A.     Development  of  the  Locomotive  Engine  .  .  8vo,  half  leather. 


*5 

00 

*3 

00 

*i 

75 

*i 

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*2 

50 

*2 

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*2 

50 

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50 

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D.  VAN   NOSTRAND   COMPANY'S   SHORT   TITLE   CATALOG      23 

Sinclair,  A.     Twentieth  Century  Locomotive 8vo,  half  leather, 

Sindall,  R.  W.     Manufacture  of  Paper.     (Westminster  Series.) 8vo, 

Sloane,  T.  O'C.     Elementary  Electrical  Calculations i2mo, 

Smith,  C.  A.  M.     Handbook  of  Testing,  MATERIALS 8vo, 

Smith,  C.  A.  M.,  and  Warren,  A.  G.     New  Steam  Tables Svo, 

Smith,  C.  F.     Practical  Alternating  Currents  and  Testing Svo, 

Practical  Testing  of  Dynamos  and  Motors Svo, 

Smith,  F.  E.     Handbook  of  General  Instruction  for  Mechanics.  .  .  .  i2mo. 

Smith,  J.  C.     Manufacture  of  Paint Svo, 

Smith,  R.  H.     Principles  of  Machine  Work i2mo, 

Elements  of  Machine  Work i2mo, 

Smith,  W.     Chemistry  of  Hat  Manufacturing i2mo, 

Snell,  A.  T.     Electric  Motive  Power Svo, 

Snow,  W.  G.     Pocketbook  of  Steam  Heating  and  Ventilation.    {In  Press.) 
Snow,  W.  G.,  and  Nolan,  T.     Ventilation  of  Buildings.     (Science  Series 

No.  5.) i6mo, 

Sofldy,  F.     Radioactivity Svo, 

Solomon,  M.     Electric  Lamps.     (Westminster  Series.) Svo, 

Sothern,  J.  W.     The  Marine  Steam  Turbine Svo, 

Soxhlet,  D.  H.     Dyeing  and  Staining  Marble.     Trans,  by  A.  Morris  and 

H.  Robson Svo, 

Spang,  H.  W.     A  Practical  Treatise  on  Lightning  Protection i2mo, 

Spangenburg,    L.     Fatigue    of    Metals.     Translated    by    S.    H.    Shreve. 

(Science  Series  No.  23.) i6mo,       0  50 

Specht,  G.  J.,  Hardy,  A.  S.,  McMaster,  J.B  .,  and  Walling.     Topographical 

Surveying.     (Science  Series  No.  72.). i6mo,       o  50 

Speyers,  C.  L.     Text-book  of  Physical  Chemistry Svo,     *2   25 

Stahl,  A.  W.     Transmission  of  Power.      (Science  Series  No.  2S.) .  .  .  i6mo, 

Stahl,  A.  W.,  and  Woods,  A.  T.     Elementary  Mechanism i2mo,     *2  00 

Staley,  C,  and  Pierson,  G.  S.     The  Separate  System  of  Sewerage.  .  .   Svo,     *3  00 

Standage,  H.  C.     Leatherworkers'  Manual Svo,     *3  50 

Sealing  Waxes,  Wafers,  and  Other  Adhesives Svo,     *2  00 

Agglutinants  of  all  Kinds  for  all  Purposes i2mo,     *3  50 

Stansbie,  J.  H.     Iron  and  Steel.     (Westminster  Series.) Svo,     *2  00 

Steinman,  D.   B.     Suspension  Bridges  and  Cantilevers.     (Science  Series 

No.  127) -. o  50 

Stevens,  H.  P.     Paper  Mill  Chemist i6mo,     *2  50 

Stevenson,  J.  L.     Blast-Furnace  Calculations i2mo,  leather,     *2  00 

Stewart,  A.     Modern  Polyphase  Machinery i2mo,     *2  00 

Stewart,  G.     Modern  Steam  Traps i2mo,     *i   25 

Stiles,  A.     Tables  for  Field  Engineers. i2mo,        i  00 

Stillman,  P.     Steam-engine  Indicator i2mo,       i  00 

Stodola,  A.     Steam  Turbines.     Trans,  by  L.  C.  Loewenstein Svo,     *5  00 

Stone,  H.     The  Timbers  of  Commerce Svo,       3  50 

Stone,  Gen.  R.    New  Roads  and  Road  Laws i2mo,       i  00 

Stopes,  M.     Ancient  Plants Svo,     *2  00 

The  Study  of  Plant  Life Svo,     *2  00 

Sudborough,  J.  J.,  and  James,  T.  C.     Practical  Organic  Chemistry.  .  i2mo,     *2  00 

Suffling,  E.  R.     Treatise  on  the  Art  of  Glass  Painting Svo,     *3  50 

Swan,  K.     Patents,  Designs  and  Trade  Marks.      (Westminster  Series.).Svo,     *2  00 
Sweet,  S.  H.     Special  Report  on  Coal Svo,       3  00 


24     D.   VAN   NOSTRAXD   COMPANY'S   SHORT  TITLE   CATALOG 

Swinburne,  J.,  Wordingham,  C.  H.,  and  Martin,  T.  C.     Eletcric  Currents. 

(Science  Series  No.  109.) i6mo,  o  50 

Swoope,  C.  W.     Practical  Lessons  in  Electricity lamo,  *2  00 

Tailfer,  L.     Bleaching  Linen  and  Cotton  Yarn  and  Fabrics 8vo,  *5  oa 

Tate,  J.  S.     Surcharged  and  Different  Forms  of  Retaining-walls.     (Science 

Series  No.  7.) ! i6mo, 

Templeton,  W.     Practical  Mechanic's  Workshop  Companion. 

i2mo,  morocco,  2  00 
Terry,  H.  L.     India  Rubber  and  its  Manufacture.     (Westminster  Series.; 

8vo,  *2  00 

Thayer,  H.  R.     Design  of  Structures {In  Press.) 

Thiess,  J.  B.  and  Joy,  G.  A.     Toll  Telephone  Practice {In  Press.) 

Thom,  C,  and  Jones,  W.  H.     Telegraphic  Connections oblong  i2mo,  i  50 

Thomas,  C.  W.     Paper-makers'  Handbook {In  Press.) 

Thompson,  A.  B.     Oil  Fields  of  Russia 4to,  *7  5° 

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Thompson,  E.  P.     How  to  Make  Inventions Svo,  0  50 

Thompson,  S.  P.     Dynamo  Electric  Machines.     (Science  Series  No.  75.) 

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Thompson,  W.  P.     Handbook  of  Patent  Law  of  All  Countries i6mo,  i   50 

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Tidy,  C.   Meymott.     Treatment   of   Sewage.     (Science   Series   No.   94.). 

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Titherley,  A.  W.     Laboratory  Course  of  Organic  Chemistry Svo,  *2  00 

Toch,  M.     Chemistry  and  Technology  of  Mixed  Paints Svo,  *3  00 

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Todd,  J.,  and  Whall,  W.  B.     Practical  Seamanship Svo,  *7  50 

Tonge,  J.     Coal.     (Westminster  Series.) Svo,  *2  00 

Townsend,  F.     Alternating  Current  Engineering Svo,  boards  *o  75 

Townsend,  T.     Ionization  of  Gases  by  Collision Svo,  *i  25 

Transactions  of  the  American  Institute  of  Chemical  Engineers.     Svo. 

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Traverse  Tables.     (Science  Series  No.  115.) i6mo,  o  50 

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Trowbridge,  W.  P.     Turbine  Wheels.     (Science  Series  No.  44.) i6mo,  o  50 

Tucker,  J.  H.     A  Manual  of  Sugar  Analysis Svo,  3  50 

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Tunner,  P.  A.     Treatise  on  Roll-turning.     Trans,  by  J.  B.  Pearse. 

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Turnbull,   Jr.,  J.,  and  Robinson,  S.  W.     A  Treatise  on  the  Compound 

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Turrill,  S.  M.     Elementary  Course  in  Perspective iimo,  *i   25 

Underbill,  C.  R.     Solenoids,  Electromagnets  and  Electromagnetic  Wind- 
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Urquhart,  J-  W.     Electric  Light  Fitting i2mo,  2   oo 

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Van  Wagenen,  T.  F.     Manual  of  Hydraulic  Mining i6mo,  i  00 

Vega,  Baron  Von.     Logarithmic  Tables 8vo,  half  morocco,  2  50 

Villon,  A.  M.     Practical  Treatise  on  the  Leather  Industry.     Trans,  by  F. 

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Vincent,  C.     Ammonia  and  its  Compounds.     Trans,  by  M.  J.  Salter.  .Svo,  *2  00 

Volk,  C.     Haulage  and  Winding  Appliances Svo,  *4  00 

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C.  Salter Svo,  *4  50 

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Vose,  G.  L.     Graphic  Method  for  Solving  Certain  Questions  in  Arithmetic 

and  Algebra.     (Science  Series  No.  16.) i6mo,  o  50 

Wabner,  R.     Ventilation  in  Mines.     Trans,  by  C.  Salter Svo,  *4  50 

Wade,  E.  J.     Secondary  Batteries Svo,  *4  00 

Wadsworth,  C.     Primary  Battery  Ignition i2mo  (In  Press.) 

Wagner,  E.     Preserving  Fruits,  Vegetables,  and  Meat i2mo,  *2  50 

Walker,  F.     Aerial  Navigation Svo,  2  00 

Dynamo  Building.     (Science  Series  No.  98.) i6mo,  o  50 

Electric  Lighting  for  Marine  Engineers Svo,  2  00 

Walker,  S.  F.     Steam  Boilers,  Engines  and  Turbines Svo,  3  00 

Refrigeration,  Heating  and  Ventilation  on  Shipboard i2mo,  *2  00 

Electricity  in  Mining Svo,  *3  50 

Walker,  W.  H.     Screw  Propulsion Svo,  o  75 

Wallis-Tayler,  A.  J.     Bearings  and  Lubrication Svo,  *i   50 

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Wallis-Tayler,  A.  J.     Motor  Vehicles  for  Business  Purposes Svo,  3  50 

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Wanklyn,  J.  A.     Water  Analysis i2mo,  2  00 

Wansbrough,  W.  D.     The  A  B  C  of  the  Differential  Calculus i2mo,  *i  50 

Slide  Valves i2mo,  *2  00 

Ward,  J.  H.     Steam  for  the  Million Svo,  1  00 

Waring,  Jr.,  G.  E.     Sanitary  Conditions.     (Science  Series  No.  31.). .  i6mo,  050 
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26     D.   VAX   XOSTRAND    COMPANY'S   SHORT   TITLE  CATALOG 

Waring,  Jr.,  G.  E.     Modern  Methods  of  Sewage  Disposal i2mo,  2  00 

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Warren,  F.  D.     Handbook  on  Reinforced  Concrete i2mo,  *2  50 

Watkins,  A.     Photography.     1  Westminster  Series.) 8vo,  *2  00 

Watson,  E.  P.     Small  Engines  and  Boilers i2mo,  i  25 

Watt,  A.     Electro-plating  and  Electro-refining  of  Metals 8vo,  *4  50 

Electro-metallurgy i2mo,  i  00 

The  Art  of  Soap-making 8vo,  3  00 

Leather  Manufacture Svo,  *4  00 

Paper-Making Svo,  3  00 

Weale,  J.     Dictionary  of  Terms  Used  in  Architecture i2mo,  2  50 

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Weather  and  Weather  Instruments i2mo,  i  00 

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Webb,  H.  L.     Guide  to  the  Testing  of  Insulated  Wires  and  Cables.  .i2mo,  i  00 

Webber,  W.  H.  Y.     Town  Gas.     (Westminster  Series.) Svo,  *2  00 

Weisbach,  J.     A  Manual  of  Theoretical  Mechanics Svo,  *6  00 

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Weisbach,  J.,  and  Herrmann,  G.     Mechanics  of  Air  Machinery Svo,  *3  75 

Weston,  E.  B.     Loss  of  Head  Due  to  Friction  of  Water  in  Pipes  . . .  i2mo,  *i   50 

Weymouth,  F.  M.     Drum  Armatures  and  Commutators Svo,  *3  00 

Wheatley,  O.     Ornamental  Cement  Work {In  Press.) 

Wheeler,  J.  B.     Art  of  War lamo,  i   75 

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Whipple,  S.     An  Elementary  and  Practical  Treatise  on  Bridge  Building. 

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Whithard,  P.     Illuminating  and  Missal  Painting i2mo,  i  50 

Wilcox,  R.  M.     Cantilever  Bridges.     (Science  Series  No.  25.) i6mo,  o  50 

Wilkinson,  H.  D,     Submarine  Cable  Laying  and  Repairing Svo,  *6  00 

Williams,  A.  D.,  Jr.,  and  Hutchinson,  R.  W.     The  Steam  Turbine {In  Press.) 

Williamson,  R.  S.     On  the  Use  of  the  Barometer 4to,  15  00 

Practical  Tables  in  Meteorology  and  Hypsometery 4to,  2  50 

Willson,  F.  N.     Theoretical  and  Practical  Graphics .» 4to,  *4  00 

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Winchell,  N.  H.,  and  A.  N.     Elements  of  Optical  Mineralogy Svo,  *3  50 

Winkler,  C,  and  Lunge,  G.     Handbook  of  Technical  Gas-Analysis.  .   Svo,  4  00 

Winslow,  A.     Stadia  Surveying.     (Science  Series  No.  77.) i6mo,  o  50 

Wisser,    Lieut.   J.    P.     Explosive  Materials.     (Science    Series   No.    70.). 

i6mo,  o  50 

Wisser,  Lieut.  J,  P.     Modern  Gun  Cotton.     (Science  Series  No.  S9.)i6mo,  o  50 

Wood,  De  V.     Luminiferous  Aether.     (Science  Series  No.  S5.) ....  i6mo,  o  50 
Woodbury,  D.  V.     Elements  of  Stability  in  the  Well-proportioned  Arch. 

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Worden,  E.  C.     The  Nitrocellulose  Industry.     Two  Volumes Svo,  *io  00 

Wright,  A.  C.     Analysis  of  Oils  and  Allied  Substances Svo,  *3  50 

— ^  Simple  Method  for  Testing  Painters'  Materials Svo,  *2  50 

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Wright,  F.  W.     Design  of  a  Condensing  Plant i2mo,  *i  50 

Wright,  T.  W.     Elements  of  Mechanics Svo,  *2  50 

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Zeidler,  J.,  and  Lustgarten,  J.     Electric  Arc  Lamps 8vo,     *2  00 

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ELECTRICAL   ENGINEER'S 
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By    HORATIO   A.    FOSTER 

(With  the  co-operation  of  eminent  speciaUsts) 
The  Most  Complete  Book  of  Its  Kind  Ever  Published 

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